Definition and Features of Indian Capital Market


Definition of Capital Market:

The market from which long-term capital required for industry, trade, and commerce is raised is called a capital market.


Features of the Indian Capital Market

The nature and structure of capital markets depend on economic conditions. Just like the capital markets of England and the United States of America have their own characteristics, the Indian capital market has similar characteristics. For example –


1. Capital Formation:

One of the characteristics of capital markets is capital formation. The small savings of the people of the country are deposited in the capital market as investments and build up a stock of money. Long-term loans are given to various business institutions from this fund. That is, the capital market creates a direct link between the surplus fund sector and the deficit fund sector.


2. Transaction of New and Existing Securities:

One of the characteristics of the capital market is that new and existing securities such as shares and debentures are traded here.


3. Lack of Efficient Agencies:

Industrial banks, undertaking companies, share distribution companies, etc., are some of the most efficient companies in foreign capital markets. But there is a dearth of such competent firms in the Indian capital market.


4. Government’s Efforts:

Investment trusts and insurance companies play an important role in the private sector in other countries, but in India, they do not play the same role. Hence the government’s effort to strengthen India’s capital market currently includes the establishment of the Unit Trust of India (UTI) and the Life Insurance Corporation of India (LICI).


5. Arrangement of Long-term Loan: 

Various investment institutions belonging to the Indian capital market arrange long-term loans in industry and commerce.


6. Help to National Growth:

One of the features of the Indian capital market is to help in national development. India’s capital market builds a treasury by collecting the meager savings of the country’s public. That money is often used for national development.


7. Location of Market:

New Bili market is not confined to any particular place within the Indian capital market. That is, there is no specific geographical location of that market. This market can be local or regional, national and international. But the stock market is located in different big cities or industrial centers of the country.


8. Reduction of Risk:

Generally, long-term bonds are much riskier than short-term bonds. But nowadays it is possible to know the change in the price of shares and debentures in the stock market at any time through an electronic system. As a result, investors can increase and decrease the amount of investment as needed.    The stock market included in the capital market thus maintains the flow of investment by reducing risk.

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