Meaning and Concept of Capital Market

Capital Market is one of the significant aspect of every financial market. Hence it is necessary to
study its correct meaning. Broadly speaking the capital market is a market for financial assets
which have a long or indefinite maturity. Unlike money market instruments the capital market
intruments become mature for the period above one year. It is an institutional arrangement to
borrow and lend money for a longer period of time. It consists of financial institutions like IDBI,
ICICI, UTI, LIC, etc. These institutions play the role of lenders in the capital market. Business
units and corporate are the borrowers in the capital market. Capital market involves various
instruments which can be used for financial transactions. Capital market provides long term debt
and equity finance for the government and the corporate sector. Capital market can be classified
into primary and secondary markets. The primary market is a market for new shares, where as in
the secondary market the existing securities are traded. Capital market institutions provide rupee
loans, foreign exchange loans, consultancy services and underwriting.

Significance, Role or Functions of Capital Market

Like the money market capital market is also very important. It plays a significant role in the
national economy. A developed, dynamic and vibrant capital market can immensely contribute
for speedy economic growth and development.

Let us get acquainted with the important functions and role of the capital market.
1. Mobilization of Savings : Capital market is an important source for mobilizing idle
savings from the economy. It mobilizes funds from people for further investments in the
productive channels of an economy. In that sense it activate the ideal monetary resources and
puts them in proper investments.
2. Capital Formation : Capital market helps in capital formation. Capital formation is net
addition to the existing stock of capital in the economy. Through mobilization of ideal
resources it generates savings; the mobilized savings are made available to various segments
such as agriculture, industry, etc. This helps in increasing capital formation.
3. Provision of Investment Avenue : Capital market raises resources for longer periods of
time. Thus it provides an investment avenue for people who wish to invest resources for a long
period of time. It provides suitable interest rate returns also to investors. Instruments such as
bonds, equities, units of mutual funds, insurance policies, etc. definitely provides diverse
investment avenue for the public.
4. Speed up Economic Growth and Development : Capital market enhances production
and productivity in the national economy. As it makes funds available for long period of time,
the financial requirements of business houses are met by the capital market. It helps in research
and development. This helps in, increasing production and productivity in economy by
generation of employment and development of infrastructure.
5. Proper Regulation of Funds : Capital markets not only helps in fund mobilization, but it
also helps in proper allocation of these resources. It can have regulation over the resources so
that it can direct funds in a qualitative manner.
6. Service Provision : As an important financial set up capital market provides various
types of services. It includes long term and medium term loans to industry, underwriting
services, consultancy services, export finance, etc. These services help the manufacturing
sector in a large spectrum.
7. Continuous Availability of Funds : Capital market is place where the investment
avenue is continuously available for long term investment. This is a liquid market as it makes
fund available on continues basis. Both buyers and seller can easily buy and sell securities as
they are continuously available. Basically capital market transactions are related to the stock
exchanges. Thus marketability in the capital market becomes easy.
These are the important functions of the capital market.

Final Glance and Conclusion on Capital Market

The lack of an advanced and vibrant capital market can lead to underutilization of financial
resources. The developed capital market also provides access to the foreign capital for domestic
industry. Thus capital market definitely plays a constructive role in the over all development of
an economy.
A capital market is a market where both The capital market investmentmakes the investors to buy or
sell securities in the capital markets. The stock market and bond market are types of capital markets
where investors can trade in stocks and bonds. The investments in the capital market may be either in the
bonds or stocks. 

Investments in the stocks or bonds may be either investing in the new issues or in the existing securities.
The primary capital market handles the trading and investments in the new issues while the secondary
capital market takes care of the trading of existing securities. 

There are a number of financial regulators that monitor the capital market dealings in order to protect the
investors from fraud. U.S. Securities and Exchange Commission is one such financial regulator that
regulates the capital markets situated in their designated countries for the best interest of the investors. 

Stock Investment

The investment in stocks may in six different styles. Depending on the needs and reasons of the
investors, the efficiency of the investment is estimated. There are some investors who depend on the
advice of other people while purchasing or selling a particular stock. 

There are technical investors who spend time in studying the stock patterns before trading any stock. The
economist investors take their decision of stock trading depending on the economic forecasts. They are in
the nature to take risks and get benefited in return following an efficient market hypotheses. There are
some other types of investors who rely on the information given by the researchers, vendors and trade
executives to make investment in the stocks. There are value investors who try to value the stock
independently of its market price. Finally, there are conscious investors who depend on their own
measurements and beliefs while making any stock investment. 

Bond Investment

Bond investment is different from that of stock investment. Bond investment is investing in the debt
instrument that is issued by a company or government. The bond investor is actually lending money to the
company while in return is promised to be paid the full principal amount plus a fixed periodic payout. The
yield on the bond is calculated by putting together the final principal and total payouts received. The yield
is the effective interest rate for the tenure of the bond. 
Stock exchanges

A stock exchange is an entity that provides services for stock brokers and traders to

trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and
redemption of securities and other financial instruments, and capital events including the
payment of income and dividends. Securities traded on a stock exchange include shares issued
by companies, unit trusts, derivatives, pooled investment products and bonds.

To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there
is a central location at least for record keeping, but trade is increasingly less linked to such a
physical place, as modern markets are electronic networks, which gives them advantages of
increased speed and reduced cost of transactions. Trade on an exchange is by members only.

The initial offering of stocks and bonds to investors is by definition done in the primary
market and subsequent trading is done in the secondary market. A stock exchange is often the
most important component of a stock market. Supply and demand in stock markets is driven by
various factors that, as in all free markets, affect the price of stocks (see stock valuation).

There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be
subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter.
This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are
part of a global market for securities.
 Method of trading in stock exchanges

A stock exchange is a corporation or organization that provides trading facilities for

stockbrokers and traders. Instruments traded on stock exchanges include stocks,
investment trusts, commodities, options, mutual funds, unit trusts and bonds. Only members
can trade on an exchange.

1. Specialists
o A stock specialist is a member of a stock exchange who provides several
services. They make a market in stocks by providing the best bid and best ask during
trading hours. Specialists also maintain a fair and orderly market.

2. Floor Brokers
o Floor brokers trade on the floor on the major exchanges. Floor brokers buy
and sell securities in their own account. Floor brokers are required to take and pass written
tests in order to trade. They must abide by exchange rules, and they must be a member of
the exchange on which they trade.

3. Stockbrokers/Financial Advisers
o Stockbrokers, financial advisers, certified financial planners and registered
representatives buy and sell stocks on behalf of their clients and customers. They must
pass certain written exams in order to carry out trades and adhere to ethical standards.

4. Day Traders
o Day traders are individuals who buy and sell securities for their own accounts.
Day traders will trade quickly--making purchases and sales on the same day.

5. Casual Traders
o A casual trader is a person who tries to build up a portfolio by buying and
selling securities for his own account over a period of time. Technology has simplified the
process and given the casual trader much of the same information and tools available to
professional traders.

6. Online Trading
o Online trading is available to any person that has an account at an online
trading firm. A person can enter trades from a personal computer and set price limits and
targets. Commissions are often much less than at a full-service brokerage firm.