What is Capital Markets? Types, Functions, Institutions, Primary and Secondary Market Process

Together, the money market and the capital market comprise a large portion of what is known as the financial market. There is less attention and information on private companies, making it difficult to invest in them, especially for smaller investors. In the private markets, there is less liquidity, meaning that it is more difficult to buy and sell securities.

  • Once trades are executed, the clearing and settlement is handled by the clearing corporation, which may operate as an independent entity or a subsidiary of the exchange.
  • Businesses need to reach a certain size, before they are in a position to mobilize funds from the public at large.
  • We will shed light on the purposes they serve in facilitating the flow of funds across the globe.
  • If a company requires funds through equity it can issue shares on the stock exchange.
  • The stock exchange is a central market through which resources are transferred to the industrial sector of the economy.

‘Interest rate futures’ was another product made available for trading on this segment with effect from August 31, 2009. Every underwriter commits to bring in an agreed amount as part of the issue. Thus, if the targeted money is not mobilized in the issue, functions of capital market the underwriters bring in the funds to bail out the issue. Derivatives can get complicated, but they represent a huge market as well. They are versatile and can be structured and created to tailor features such as risk and return for other securities.

Determination of Prices

The secondary market exists where forex trading and the trading of securities take place within different exchanges. There are two main types of capital markets; The Primary Market and the Secondary Market. The capital market facilitates the trading of long-term securities. It reduces the overall cost and time involved in the whole trading process.

functions of capital market

Capital markets are composed of the suppliers and users of funds. The users of the funds distributed on capital markets include home and motor vehicle purchasers, non-financial companies, and governments financing infrastructure investment and operating expenses. One of the core functions of capital markets is to enable investing in the capital market instruments.

Capital Market: Functions, Instruments and Types

Furthermore, the capital market is beneficial in promoting the economic growth of a nation as a whole. It often contributes towards increasing national incomes and employment generation. The main https://personal-accounting.org/pretax-earnings-definition/ aspect of the capital market is raising funds from outside investors for companies. Besides, it helps create more wealth by facilitating companies to raise their capital from outside investors.

  • The secondary market, on the other hand, is where securities that have already been issued are traded between investors.
  • It includes Initial Public Offerings (IPOs) by companies, rights issues, and private placements.
  • Moreover, the funds, flowing into the capital market come from people having money to invest.

The NPS provides for regular contributions by individuals or employers of individuals towards a pension plan. The contributions accumulate during the earning years of the individual. Towards retirement, the accumulations are to be used to buy an annuity from an insurance company. Mutual Funds are vehicles to mobilise funds from investors, through various schemes. The funds are then invested in line with the scheme guidelines, for the benefit of investors. Now, the public listed companies making IPO of any security for Rs.10 crore or more have to make the IPO only in dematerialised form.

Capital Market, Definition, Types, Functions, Examples, Instruments

It is an organised financial market where saving and investment is channelled between the one who has sufficient money and one who is in need of money. Capital Market basically serves as the link between the savers and investors. This market involves trading of long term financial securities for raising and investing of long term finance. The securities market significantly helps in economic growth by maintaining stability, encouraging investment, and facilitating effective resource allocation. Understanding the significance of the market and its numerous roles becomes more important for informed decision-making and sustainable growth as we navigate an ever-changing financial landscape.


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