Capital market
The capital market is a part of the financial system where long-term funds are raised and traded. It connects people or institutions who have surplus money (investors) with those who need funds (companies, governments).
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📌 What is a Capital Market?
A capital market deals with financial assets that have a maturity period of more than one year. It helps businesses expand and governments finance projects.
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🔑 Key Components of Capital Market
- Primary Market (New Issues Market)
- Where new securities are issued for the first time
- Companies raise fresh capital through:
- Initial Public Offerings (IPOs)
- Rights issues
👉 Example: When a company launches its IPO on National Stock Exchange or New York Stock Exchange
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- Secondary Market (Stock Market)
- Where existing securities are bought and sold
- Investors trade among themselves
- Provides liquidity
👉 Example: Buying or selling shares of Apple Inc. or Tesla, Inc.
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📊 Types of Capital Market Instruments
- Equity Shares – Ownership in a company
- Bonds/Debentures – Loans given to companies or governments
- Mutual Funds – Pooled investment funds
- Derivatives – Contracts based on underlying assets
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🎯 Functions of Capital Market
- Mobilizes savings from investors
- Provides long-term funding
- Promotes economic growth
- Offers investment opportunities
- Ensures efficient allocation of resources
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⚖️ Capital Market vs Money Market
Feature Capital Market Money Market
Time Period Long-term (>1 year) Short-term (<1 year)
Instruments Shares, Bonds Treasury Bills, CP
Risk Higher Lower
Purpose Investment & growth Liquidity management
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🌍 Importance of Capital Market
A strong capital market:
- Boosts industrial development
- Creates jobs
- Attracts foreign investment
- Strengthens the