The capital market serves as a marketplace for long-term debt and equity shares. Capital funds consisting of both equity and debt are issued and traded in this market. Along with established markets like stock exchanges, this also includes private placement sources of debt and equity. Stock exchanges like the BSE, NSE, and MCX (Commodity Exchange), as well as banks, brokers, insurance providers, and other financial institutions, are examples of capital market intermediaries. Capital market industry players trade in market instruments such as stocks, bonds, ETFs, debentures, and derivatives such as futures, options, etc. Capital markets in India are highly regulated and organized. The capital market can be further divided into primary and secondary markets.
Types of Capital Markets
There are two different types of capital markets: primary markets and secondary markets.
- The primary market is where companies first issue shares through an Initial Public Offering (IPO). The company’s shares are listed on the stock exchange after the IPO process.
- The term secondary market describes a market where securities are exchanged following their initial public offering in the primary market and/or listing on the Stock Exchange. Most trading takes place on the secondary market
Features of the Capital Market
Capital markets may be perceived as a market for long-term or infinitely maturing financial assets, but they actually play a crucial role in the mobilization and allocation of resources to productive channels. It is, therefore, possible to say that capital markets facilitate a country’s process of economic progress. A few important functions and significance of the markets are: –
- Economic Growth: Capital markets contribute to the advancement of economic growth. It promotes trade and industrial growth in both the public and private sectors, which results in balanced economic growth for the nation.
- Availability of Funds: Continuous investments are made in the capital markets. Through an online platform, buyers and sellers interact and trade assets and capital. Stock exchanges like the NSE and BSE provide a platform for this, making capital market transactions simple.
- Security: The government regulates the capital markets. They operate in accordance with a set of regulations. As a result, investors believe it to be a secure environment for trading.
- Savings: The capital markets act as a link between savers and investors. With the growth of the capital markets, the taxation system and the banking institutions give investors the means and provisions to save more.
- Long-term investment: Capital markets provide a platform for long-term investments. Through the capital markets, investors can invest in long-term financial options.
- Wealth Creation: Through the power of compounding, the capital market offers investors with surplus funds the chance to invest in securities like shares and bonds and build wealth for themselves. For instance, with Kuvera, you can explore Dynamic Portfolio Management & Services small-cap stocks. The company invests in the capital market and is involved in non-banking financial activities.
- Helps intermediaries: With the assistance of intermediaries like stock exchanges, brokers, banks, etc., the capital market transfers savings from savers to borrowers. Thus, the capital market assists intermediaries in conducting business and generating profits.
Role of Securities Exchange Board of India (SEBI) in Capital Market
The Indian Securities Market is governed by the Securities Exchange Board of India (SEBI). Despite being established in 1988, it lacked any legal standing until May 1992, when it was given the authority to legally enforce its control over the financial market intermediaries. There were several malpractices occurring as the size of transactions in the financial markets grew. Practices like false issues, delays in delivery, and violations of stock exchange rules and regulations were on the rise. The Indian government made the decision to establish the Securities Exchange Board of India (SEBI) as a regulating organization to stop these malpractices.
A few Securities Exchange Board of India (SEBI) roles and objectives are mentioned below:
- Regulation of stock market activity
- Defending the interests of investors
- Providing for the safety of the investments.
- To prevent malpractices and fraudulent operations.
- To create a code of conduct for intermediaries, such as brokers, etc.
Frequently Asked Questions (FAQs)
How to invest in the stock market using Kuvera?
A capital market is a financial market in which investors buy and sell financial securities such as stocks, bonds, etc.
- Visit the official website or click here to download the Kuvera share market app.
- Complete the mandatory KYC process and create your account on Kuvera.
- Once the process is completed, you can select the ‘Invest’ option on the homepage.
- You can select “Stocks” and can explore the list and choose accordingly. With the Kuvera app, you can identify the best stocks to buy in India.
- Then click on “Buy” and select a broker to proceed further. You will be directed to another page where you can sign in with your login details that are registered with your broker.
- You can choose the “Others” option if your broker is not on the list. In that case, you can place the order on your broker’s website and import the updated Consolidated Account Statement (CAS).