What is the capital market?
The capital market is one kind of financial market that connects buyers and sellers to trade financial instruments, stocks, securities, etc. The capital market has an enormous sense in terms of activities. It has a multiple part of capital markets like the stock markets, bond markets, currency markets, etc., is included that can be divided based on the functionalities. The capital market has two types; one is the primary market, and the second is the secondary market.
The capital market deals with types of securities that have maturity periods (age) for the medium and long term. It also provides facilities to raise funds from national and international or globally. That’s why the development of the financial market is significant for making healthy and wealthy economic growth. In this article, we discuss what types of capital structures India has.
What is the importance of the capital market?
The importance of the capital market can be described below;
- It makes good coordination between the savings and investment flow with a formation system established through guidelines and regulations.
- The savers can choose the best beneficial option among the various investing resources through the capital market.
- The capital market provides various financial services, helping grow the nation’s economy and making it more flexible.
Structure Of Capital Market In India
The structure of the capital market in India is divided into multiple functionalities, which play a significant role in the growing economy. As discussed above, the financial market operates various functions related to savings and investment between resources. That structure may be complex because it is connected with different financial resources and investments.
The basic definition of the capital market is that it is a place where long-term financial securities are traded. These securities can be included like shares, bonds, debentures, or such kinds of financial instruments. This market deals with long and medium-term financial assets whose maturity periods are not less than one year. That provides long-term financial facilities like debt and equity to the corporate and government sectors.
Here in the financial market, the companies or governments who seek the funds are known as borrowers, and the investor who supplies the funds is known as the lender.
The capital market is structured in plenty of parts; the main features are given below;
Government securities market
The government securities contain various types of bonds, treasury bills, etc. Investment products can be issued by either India’s central or state government. That also known as gilt-edged instruments. Those securities carry a fixed rate of interest. That way, it has minimum risk and is also called risk-free securities.
Industrial securities market
This market deals with various financial instruments, for example, shares, debentures, and other financial instruments. The older or new companies or governments issue those securities. This market has two parts primary and secondary market. The new securities will first be issued and traded in the primary market. Then, it will come on the secondary market for trading. The primary market is connected with fresh securities, which help raise funds through various securities. The secondary market is associated with those securities previously introduced and traded in the primary market—all operations of these markets run through the stock exchange.
Development Financial Institutions (DFIS)
The government manages the development finance institutions, which provide medium and long-term financial funds for low-capital projects. They help to connect public aid and private investment. The Industrial Finance Corporation of India (IFCI), the Industrial Investment Bank of India (IIBI), EXIM bank, Etc. are included in the development of financial institutions (DFIS).
Financial intermediaries
Many intermediaries are available to connect the investors and the borrowers for financial purposes, For example, banks, insurance companies, stock exchanges, credit unions, etc. They provide good financial intermediaries services such as helping to invest and borrow funds.
What do reform we see in the capital market in India?
The Indian capital market grows after 1990. To achieve those reforms, the SEBI and the government of India make specific changes. We can see the following reforms are implemented in India’s capital market.
Establishment of the Stock Exchange Board of India (SEBI):
The SEBI was established in 1988 and legalized in 1992; that handles activities of merchant banks and manages various types of operations like management of mutual funds activities, control of new issues and securities produced by older or new companies, etc. Establishing SEBI aims to protect savers’ and investors’ rights. The SEBI connects investors to proper borrowers with trust and insurance.
Establishment of creditors rating agencies:
The main work of creditor rating agencies is to analyze the financial condition of different financial institutions directly connected with the stock market. These agencies aim to provide information on various institutions’ financial conditions, which helps investors find out the minimum risk factors of their investment. The leading three agencies are set up to fulfill this purpose. The first is the Credit Rating Information Services of India Limited, also known as CRISIL. The second one is India’s Investment Information and Credit Rating Agencies, is also known as ICRA, and the third is Credit Analysis and Research Limited, known as CARE.
Increase merchant banking activities:
We know that the banking sector has evolved over the past few years. Cause of this development and globalization, Indian and foreign bankings add more value and services to their operations and functions. That’s why commercial banks started merchant banking services in their banking functions. These services include underwriting services, organizing issues, financial consulting, etc. That’s types of functionalities help to push up the capital market.
Good performance of the Indian economy:
We see some significant changes in the Indian economy in these years and scales year by year. The development of the economy has attracted more investors, which belong to other countries. They come through their foreign institutional investments, which called FII, into the Indian capital market. After all, the positive impact we can see in India is that so many new companies are also motivated to expand their businesses and raise funds through the capital market.
More usage of electronic and digital transactions:
The government publicly supports and prompts for electronic and digital transitions. This technological revolution results in investors’ quickly investing their money without extra paperwork, saving money and energy. Investors can choose their personal, convenient way for their investing strategy safely and securely. That’s resulted in more new investors being attracted to invest in the capital market.
Highly growth mutual fund industries:
The mutual funds industries provide wild opportunities to investors to diversify their investments in versatile assets. This industry plays an essential role in the capital market.
The expansion of mutual fund industries makes good growth of the capital market. There are so many new funds produced by various financial institutions, PSU banks, foreign banks, joint mutual funds like Indian and foreign companies, Etc.
The growth of the Mutual Fund Industries in India has created its edge in the personal finance industry in India. It has opened up opportunities for investors to diversify their investments across assets. The mutual fund provides small and large investors opportunities to invest their savings into the capital market and benefit from there.
Conclusion
The structure of the Indian capital market has been significantly reformed from previous years. The Indian government and SEBI also have taken up some appropriate stapes to increase investment efficiency and transparency. As a result, we can say that the Indian capital market has significantly grown.