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SPEEDY Railway Book (English)

Capital Market in India


Capital market is the market for long term funds unlike the money market, which is market for short term funds. Capital market refers to all institutional arrangements and facilities for lending and borrowing long term and medium term funds. The demand for long term capital
comes predominantly from private sector manufacturing industries and form govt. for economic development. The supply of funds comes largely from individual savers, corporate saving banks, insurance companies, specialized financing agencies and the government.

The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India. SEBI was constituted by Government of India during 1988 and accorded statutory powers under SEBI Act 1992, with the objectives –
  • To regulate the security market;
  • To protect interest of investors and
  • To promote the development of security market;

The SEBI Act was announced on 25th January, 1995 to give additional powers for ensuring orderly development of the capital market and to enhance SEBI ability to protect the interest of the investors. 

Role of Capital Market:
  • Proper channelization of funds
  • Promotion of industrial growth
  • Provision of variety of services
  • Raising long term capital
  • Mobilization of saving to accelerate capital formation

Components of Capital Market:
  • Equity Market – Equity is the common ownership interest of shareholders in a company with various kinds of equity shares as under:
  1. Equity Shares
  2. Bonus Shares
  3. Right Shares
  4. Participating Preference Shares
  5. Preferred Stock/ Preference Shares
  6. Cumulative Preference Shares

  • Derivatives Market – The derivatives market is the market for derivatives, financial instruments like features contracts or options, which are derived from other forms of assets.
  • Debt Market – An instrument issued by a company bearing a fixed interest rate payable half yearly on specific dates and principal amount repayable on particular date on redemption.

Both Equity and Debt Market have two segments –
  • The Primary Market – The Primary Market refers to the set up which helps the industry to raise funds by issuing different types of securities, which are issued directly to the investors, both institution and individual. There are different kinds of Issues in Primary Market –
  • Initial Public Offering (IPO): An Initial Public Offering is when an unlisted company makes either a fresh issue of securities of an offer for sale of its sale of its existing securities or both for the first time to the public.

  1. Future Issue
  2. Right Issue
  3. Preferential Issue

  • The Secondary Market – The Secondary Market refers to network for subsequent sale and purchase of securities, after these are issued.

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