Capital Market is generally understood as a market for long term funds and investments in long term instruments available in this market. However now this market also inclus=de short-term funds. Capital markets mean the market for all the financial instruments, short term and long term, as also commercial, industrial and government paper.
The capital market deals with capital. The capital market is a market where borrowing and lending of long term funds takes place.
Capital markets deal in both debt and equity. In these markets productive capital is raised and made available to the corporates. The governments both central and state raise money in the capital market, through the issue of government securities. Capital market refers to all the institutes and mechanisms of raising medium and long-term funds, through various instruments available like shares, debentures, bonds etc.
The importance of capital markets has grown in the last ten years. Corporates both in the private sector as well as in the public sector raise thousands of crores of rupees in these markets. The capital markets consist of the primary market and the secondary market . The primary markets are where new stock and bonds issues are sold (underwriting) to investors. The secondary markets are where existing securities are sold and bought from one investor or speculator to another, usually on an exchange.
There are two important operations carried on in these markets.
1. The raising the new capital
2. Trading in the securities already issued by the companies
The important constituents of the Capital market are:
1. The Stock Exchanges
2. Banks
3. The investment trusts and companies
4. Specialised financial institutions or development banks
5. Mutual funds
6. Post office savings banks
7. Non-banking financial institutions
8. International financial investors and institutions
