The capital market plays a significant role in the national economy. A developed, dynamic and vibrant capital market can immensely contribute to speedy economic growth and development. Here, we will discuss features and role of Capital market.
Following are the main features of the capital market:
- Dealing in long term securities: Capital market deals in securities for long and medium term like shares, debentures and bonds. It does not deal with channelising saving for less than one year.
- Dealing in marketable and non-marketable securities: Capital market deals in both marketable and non-marketable securities. Marketable securities are those which can be transferred e.g. shares, debentures etc. Non-marketable securities are those which cannot be transferred e.g. term deposits with banks, loans and advances of banks and financial institutions.
- Includes both individual and institutional investors: capital market comprises both individual and institutional investors. Individual investors are general public and institutional investors include mutual funds, pension funds, LIC etc.
- Includes both primary and secondary markets: primary market relates to issue of fresh securities in the market and secondary market deals with sale and purchase of existing securities through stock exchange.
- Utilises intermediaries: operations in the capital market is conducted with the help of intermediaries like merchant bankers, underwriters, brokers, sub-brokers, collection bankers etc.
ROLES/IMPORTANCE/SIGNIFICANCE OF CAPITAL MARKET
Following are the roles or importance or significance of capital market:
- Helps in raising long-term funds: Capital market enables Corporates, industrial organisations, financial institutions, trusts and the government to get long-term funds from both domestic and foreign markets.
- Channelise saving of people to productive uses: Capital market mobilizes idle funds from people for further investments in the productive channels of an economy. In that sense, it activates the idle monetary resources and puts them in proper investments.
- Helps in capital formation: Capital formation is the net addition to the existing stock of capital in the economy. Through mobilization of idle resources to industries, it helps in increasing capital formation.
- Encourages to Save: With the development of capital, market, the banking and non-banking institutions provide facilities, which encourage people to save more.
- provides income to investors: by investing in shares and other securities investors get income in the form of dividend/interest and capital appreciation.
- Encourages to Invest: The capital market facilitates lending to the corporates and the government and thus encourages investment. It provides investment facilities through banking and non-banking financial institutions. Various financial assets, e.g., shares, debentures, bonds, etc., encourages savers to lend to the government or invest in industry.
- Provide liquidity to investment: liquidity means how easily and how quickly assets can be converted into cash. through capital market, investors can convert their money into securities, and when they need money they can easily sell them and get cash.
- Attracts foreign investors: capital market provide an opportunity to Foreign institutional investors and foreign individual investors and non-resident Indians to invest in Indian securities market.