Definition: The capital market is a component of the financial market where medium-term and long-term funds (more than one year) are raised and traded. It deals in securities such as shares, debentures, bonds, and other long-term investments. Key Features of Capital Market:
Long-term: Maturity period more than one year Less Liquidity: Compared to money market, but still tradableHigher Risk: Instruments carry market risk, credit riskPhysical and Electronic Exchanges: Has organized stock exchangesParticipants: Individual investors, institutional investors, corporations, government, foreign investorsCapital Market Instruments:
Instrument Description Equity Shares Ownership capital with voting rights Preference Shares Fixed dividend, priority over equity Debentures/Bonds Long-term debt instruments with fixed interest Government Securities Long-term borrowing by government (G-Secs) Mutual Funds Pooled investment in diversified portfolio Derivatives Futures, options, swaps for hedging and speculation
Structure of Capital Market:
Primary Market (New Issues Market): Where new securities are issued for the first time Methods: IPO, FPO, Rights Issue, Private Placement Secondary Market (Stock Market): Where existing securities are traded among investors Provides liquidity to investors Examples: BSE, NSE Functions of Capital Market:
Mobilizes long-term savings for investment Facilitates capital formation and economic growth Provides liquidity to investors through trading Helps in price discovery of securities Encourages foreign investment Regulator: In India, the capital market is regulated by the Securities and Exchange Board of India (SEBI) .