18/06/2015 WhatisCapitalMarket?Meaning,FunctionsandRole

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WhatisCapitalMarket?Meaning,FunctionsandRole

Post:GauravAkrani. Date:9/23/201001:06:00PMIST.NoComments. Label:Economics,StudyNotes.

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18/06/2015 WhatisCapitalMarket?Meaning,FunctionsandRole

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MeaningandConceptofCapitalMarket

CapitalMarketisoneofthesignificantaspectofeveryfinancialmarket.Henceit is necessary to study its correct meaning. Broadly speaking the capitalmarketisamarketforfinancialassetswhichhavealongorindefinitematurity.Unlike money market instruments the capital market intruments becomemature for the period above one year. It is an institutional arrangement toborrow and lendmoney for a longer period of time. It consists of financialinstitutions like IDBI, ICICI, UTI, LIC, etc. These institutions play the role oflendersinthecapitalmarket.Businessunitsandcorporatearetheborrowersinthecapitalmarket.Capitalmarket involvesvariousinstrumentswhichcanbeusedforfinancialtransactions.Capitalmarketprovideslongtermdebtandequity finance for the government and the corporate sector. Capitalmarketcanbeclassifiedintoprimaryandsecondarymarkets.Theprimarymarketisamarket for new shares, where as in the secondary market the existingsecurities are traded. Capital market institutions provide rupee loans,FOREIGNEXCHANGE loans,consultancyservicesandunderwriting.

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18/06/2015 WhatisCapitalMarket?Meaning,FunctionsandRole

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Significance,RoleorFunctionsofCapitalMarket

Like the money market capital market is also very important. It plays asignificant role in thenational economy.Adeveloped, dynamicand vibrantcapital market can immensely contribute for speedy economic growth anddevelopment.

Let us get acquainted with the important functions and role of the capitalmarket.

1.MobilizationofSavings:Capitalmarketisanimportantsourceformobilizingidlesavingsfromtheeconomy.Itmobilizesfundsfrompeopleforfurther INVESTMENTS intheproductivechannelsofaneconomy.Inthatsenseitactivatetheidealmonetaryresourcesandputstheminproperinvestments.

2.CapitalFormation:Capital MARKETHELPS incapitalformation.Capitalformationisnetadditiontotheexistingstockofcapitalintheeconomy.Throughmobilizationofidealresourcesitgeneratessavingsthe

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mobilizedsavingsaremadeavailabletovarioussegmentssuchasagriculture,industry,etc.Thishelpsinincreasingcapitalformation.

3.ProvisionofInvestmentAvenue:Capitalmarketraisesresourcesforlongerperiodsoftime.Thusitprovidesan INVESTMENT avenueforpeoplewhowishto INVEST resourcesforalongperiodoftime.Itprovidessuitableinterestratereturnsalsotoinvestors.Instrumentssuchasbonds,equities,unitsofmutualfunds,insurancepolicies,etc.definitelyprovidesdiverseinvestmentavenueforthepublic.

4.SpeedupEconomicGrowthandDevelopment:Capitalmarketenhancesproductionandproductivityinthenationaleconomy.Asitmakesfundsavailableforlongperiodoftime,thefinancialrequirementsofbusinesshousesaremetbythecapitalmarket.Ithelpsinresearchanddevelopment.Thishelpsin,increasingproductionandproductivityineconomybygenerationof EMPLOYMENT anddevelopmentofinfrastructure.

5.ProperRegulationofFunds:Capitalmarketsnotonlyhelpsinfundmobilization,butitalsohelpsinproperallocationoftheseresources.Itcanhaveregulationovertheresourcessothatitcandirectfundsinaqualitativemanner.

6.ServiceProvision:Asanimportantfinancialsetupcapitalmarketprovidesvarioustypesofservices.Itincludeslongtermandmediumtermloanstoindustry,underwritingservices,consultancyservices,exportfinance,etc.Theseserviceshelpthemanufacturingsectorinalargespectrum.

7.ContinuousAvailabilityofFunds:Capitalmarketisplacewheretheinvestmentavenueiscontinuouslyavailableforlongterminvestment.Thisisaliquidmarketasitmakesfundavailableoncontinuesbasis.Bothbuyersandsellercaneasilybuyandsellsecuritiesastheyarecontinuouslyavailable.Basicallycapitalmarkettransactionsarerelatedtothe STOCKEXCHANGES .Thusmarketabilityinthecapitalmarketbecomeseasy.

Thesearetheimportantfunctionsofthecapitalmarket.

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FinalGlanceandConclusiononCapitalMarket

The lack of an advanced and vibrant capital market can lead tounderutilization of financial resources. The developed capital market alsoprovides access to the foreign capital for domestic industry. Thus capitalmarketdefinitelyplaysaconstructive role in theoveralldevelopmentofaneconomy.

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