MTM Trading

7 Functions and Role of Capital Market

Whereas Secondary market is a market for the trading of old and existing securities. The secondary market is known as the stock market or stock exchange. The securities which were previously traded in the primary market are traded in the secondary market. Capital market plays a wide range of important functions for the betterment of the economy which is discussed below. The core purpose of the securities market is to raise money or funding.

As clear from the above, the primary market transactions directly affect the issuing company’s balance sheet (i.e. the financial statement of its assets and liabilities as on any date). For instance, if the company issues equity shares, the equity share capital in its balance- sheet will increase. A secondary market refers to a market, where securities that are already issued by the Government or corporations, are traded between buyers and sellers of those securities. The securities traded in the secondary market could be in the nature of equity, debt, derivatives etc. Elearnmarkets today will tell you how the Indian Capital Market works.

Example of Capital Market:

DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates.

functions of capital market

The capital market is a fundamental component of the economy, facilitating the trading of financial securities such as stocks and bonds. It serves as a platform where individuals and organizations can raise capital, while investors can allocate their funds to earn returns. Therefore, in a capital market, an individual or organisation with surplus funds agrees to invest in a business for the long-term benefits of both parties. After researching the company, interested individuals purchase those shares through the IPO procedure. Together, money markets and capital markets form the financial markets, as the term is narrowly understood.[b] The capital market is concerned with long-term finance. In the widest sense, it consists of a series of channels through which the savings of the community are made available for industrial and commercial enterprises and public authorities.

What Are Capital Markets?

The rating also factors in NSCCL’s rigorous risk management controls and adequate settlement guarantee cover. Once trades are executed, the clearing and settlement is handled by the clearing corporation, which may operate as functions of capital market an independent entity or a subsidiary of the exchange. The National Securities Clearing Corporation Ltd. (NSCCL), a wholly-owned subsidiary of NSE, is responsible for clearing and settlement of trades executed at the NSE.

  • With the help of secondary market investors can sell off their holdings and convert them into liquid cash.
  • Funds are provided at standard and minimum interest rates to the borrower.
  • Linking buyers and sellers is a major function of the capital market.
  • The Commercial and Financial Institutions provide timely financial assistance to viable sick units to overcome their industrial sickness.
  • It always circulates funds among the different sectors of society, thereby ensuring adequate availability of funds.

The primary market mainly deals with new securities that are issued in the stock market for the first time. The main function of the primary market is to facilitate the transfer of the newly issued shared from the companies to the public. The main investors in this type of market are financial institutions, banks, HNIs, etc.

Difference between Capital Market and Money Market

Between the types of capital markets, it deals with securities that have already been traded in the primary market. New York Stock Exchange (NYSE), Bombay Stock Exchange (BSE), National Stock Exchange (NSE), etc. are secondary markets. A capital market is a financial market where long-term debt or equity-backed securities are bought and sold. Suppliers are people/organisations with the capital to lend or invest.

  • On the Capital market transactions are made either over the counter (OTC) or over electronic dealing platforms.
  • Whereas, investors get the interest on their money or get the share of profits in the company they choose to invest in.
  • Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology.
  • Control the activities of transfer agents, stock brokers, commercial bankers, etc.2.

The capital market is also a venue where people make money but has different characteristics. In this market, there are entities that issue shares, bonds, or other long-term securities to raise capital and grow their businesses, and those who invest in these instruments, hoping to turn a profit. The capital market helps investors reduce the risk of making losses in other financial instruments and commodities through diversification. Investors can purchase bonds, preference shares and debentures along with common stock and other commodities in order to spread out risk. Risk tolerant investors purchase stocks whilst risk-averse investors purchase bonds. The market where securities are traded is known as the Securities market.

They provide electronic trading platforms where investors can buy and sell securities. These exchanges play a crucial role in price discovery, liquidity provision, and facilitating fair and transparent trading. When a company makes a public issue of its equity shares for the first time, it is called an initial public offer (IPO) and subsequent issues are follow-on public offers (FPO).

functions of capital market

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