Capital market is an economics terms which relate to finance and financial markets. In financial markets there is a term of capital market which deals with shares, etc. to keep economy ongoing with good pace you need to have capital markets and also as to multiply your money. When we see, that people have money it’s not feasible or ideal to keep the money idle. One must invest it in the capital market and earn huge profits. As the saying goes- money makes money!
What is meant by capital markets?
Capital markets are a type of financial markets which acts as a channel where the funds are transferred from the fund saver to the seekers of fund- those who need them. In capital market buyer and seller exchange money in terms of stocks, shares, etc. The two usual parties who engage in this are people and institutions. Government and companies have a facility to raise funds via these shares and debentures. People buy these shares of a company- that is they pay money to the company and invest in them. In return they become investors and they can sell these shares anytime when their prices are high, and make profits. This is how the basic capital market works.
As compared to earlier times the capital market has now become way more advanced with technological developments. More of the data is stored and analyzed electronically. It also has expanded the business benefitting more people and bringing traders from different countries and zones together.
What is meant by securities market?
Securities market are divided into two components- primary market and secondary market.
Primary market
Primary market deals with the trading of new stocks and debentures. These are being dealt by the companies for the first time in order to get long term capital for their functioning of the business. The market generally deals with the new issues of stocks, debentures, etc. only. It directs the flow of funds from investors to the borrowers, companies and industries directly help to gain financial support- capital formation. For example, when a company is in need of funds and it issues shares in the capital market for the first time it is called IPO- initial public offering. Later on whenever the company will issue shares it will be known as FPO- follow on public offer.
Features of Primary market
- It relates only to issue of new shares, for the first time.
- The place is not fixed.
- Public offer.
- Offer for sale.
- Private placement.
- Right issue.
- IPO- Initial Public Offering.
Secondary market
Secondary markets deal with the already existing issue of shares by the company. The dealing is usually done through stock exchange. The main agenda of the secondary market is to generate liquidity. It is done through buying or selling of securities in the stock exchange. People invest in stock exchange to earn profits. Firstly the listing is done of the companies in the trading list and then buying and selling of securities takes place.
Secondary market traders are- Bombay stock exchange (BSE), National stock exchange (NSE), Calcutta stock exchange (CSE), etc.
Secondary market can be further divided into spot market- where delivery and payment of securities is to be done immediately. And future market- where stocks are brought and sold for some predetermined date.
Features of secondary market
- Generated liquidity.
- There is a specific place for trading of securities- stock exchange market.
- Encourages new investments.
Regulatory engaged with securities market
- SEBI- Securities and Exchange Board of India
- RBI- Reserve Bank of India
- DEA- Department of Economic Affairs
- DCA- Department of Company Affairs
Factors responsible for growth of capital market
Capital market in India has seen a tremendous growth in terms of finance. It becomes important to develop economy of a country and for this capital markets do play a crucial role in developing the country’s economy at a faster pace. The factors which affect the growth of capital markets are- growth of financial institutions, list of increasing number of shares, growth in mutual funds, merchant banking growth, etc.
Difference between money markets and capital market
People often tend to get confused between money markets and capital markets, but they are different. Capital market deals mainly deals with medium and long term investments whereas money markets deal with exchange of money for a shorter period of time not exceeding beyond one year. Capital markets deal with shares and debentures on the other hand money markets deal with collateral loans, short term deposits, bills of exchange, etc.
Summary
Capital markets are the market which deal with exchange of securities to generate cash flow in the economy and is used as a source of investments by the people and deal with finances. Capital markets involves securities such as shares and debentures, it is for medium and long term investments. It plays an important role in developing a country’s economic system.
For more details visit our website
