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All About Capital Market In India

CAPITAL MARKET deals with medium term and long term funds. It refers to all facilities and the institutional arrangements for borrowing and lending term funds. These markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments. Regulation of the capital markets and protection of investor's interest is now primarily the responsibility of the Securities and Exchange Board of India (SEBI).

The demand for long term funds comes from private business corporations, public corporations and the government. The supply of funds comes largely from individual and institutional investors, banks and special industrial financial institutions and Government.

Differences between Money Market and Capital Market:

Structure / Classification Of Capital Market:

Capital market is classified in two ways:

1) First way of classifying capital market is:
ü Gilt - Edged Market:-
Gilt - Edged market refers to the market for government and semi-government securities, which carry fixed rates of interest. RBI plays an important role in this market.
ü Industrial Securities Market:-
It deals with equities and debentures in which shares and debentures of existing companies are traded and shares and debentures of new companies are bought and sold.
ü Development Financial Institutions:-
Development financial institutions were set up to meet the medium and long-term requirements of industry, trade and agriculture. These are IFCI, ICICI, IDBI, SIDBI, IRBI, UTI, LIC, GIC etc. All These institutions have been called Public Sector Financial Institutions.
ü Financial Intermediaries:-
Financial Intermediaries include merchant banks, Mutual Fund, Leasing companies etc. They help in mobilizing savings and supplying funds to capital market.

2) Second way in which capital market is classified is as follows:
ü Primary Market:-
Primary market is the new issue market of shares, preference shares and debentures of non-government public limited companies and issue   of public sector bonds.
ü Secondary Market:-
This refers to old or already issued securities. It is composed of industrial security market or stock exchange market and gilt-edged market.

Various instruments of capital market:

v Shares:- Shares are a unit of ownership in an organisation or corporation. It is a part of the company’s capital. Those individuals who are getting shares from any company, are called Shareholders. When a company wants to borrow and increase their capital, they issue their shares in the stock market (exchange) for their investors.
Companies can issue two types of shares, which they offer to investors/shareholders. The two types of shares are:

  • Equity shares
  • Preference shares

v Bonds:- Bonds are issued by the banks, organisations and financial institutions. They issue bonds for getting an amount of money from public (as a loan) and commit them a refund with an actual interest and within a maturity period. They issue their bonds for financing their capital expenses and their various projects or activities.

v Debentures:- Debenture is an instrument which is used by the Corporations and Government for getting a loan from public and it is given under the company’s Stamp Act. Corporations and Government can secure  their debenture on company assets which it issues as long term loans. In Debentures, companies are required to announce a fixed return at the time of issuing.

v Fixed Deposit:- Fixed Deposit is that kind of bank account, where the amount of deposit is fixed for a specified period of time. All Commercial banks are given these opportunities to their customers for opening a fixed account in their bank.

v Gold ETF:- Gold ETF is one of the most popular funds as it does not get influenced due to stock fluctuations or inflation. Gold ETF fund is a fiscal instrument which works as a mutual fund and whose prices are depending upon the market price of gold. When the market price of gold increases, gold ETF prices also increase.

v Foreign exchange market (Forex market):- Forex is one of the biggest investment markets in the world and it is a huge platform for investors for their investment. There are various forms of currencies included for trading on international level. The investors invest their money on the value of currencies fluctuation because of variation in the economic position of countries and entire world economy.

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