Function and Feature of Capital Market

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Functions of Capital Market:

While from a broader perspective, Capital Markets is viewed as a market of financial assets with long or infinite maturity, it plays a very important role in mobilizing resources and allocating them to productive channels. So it can be said that the process of economic growth of a country is facilitated by the Capital Markets. The important functions and significance of the markets have been discussed below: 

  • Links Savers And Investors:

The capital market serves as an intermediary between the people having excess funds and the ones who need funds. It channels the ideal lying resources to more productive sources where it can generate income and increase productivity. It mobilizes people’s savings by directing and guiding them for productive investment. These investments provide regular income and growth to the investors.

  • Capital Formation:

The capital market has an efficient role in capital formation in the economy. It fulfills and caters to the financial needs of different sectors of the economy by providing them with sufficient funds timely. It transfers funds from ideal lying sources to more productive and development sources.

It mobilizes the saving of people through investments and lends that money for large development projects in the economy. This way it fulfills the overall fund requirement and helps in adding on to the existing stock of capital in the economy.

  • Regulate Security Prices:

It helps in regulating the stable and systematic prices of securities. The capital market continuously monitors the trading of securities. It keeps an eye over whole processes and avoids any unproductive and speculative activities. Funds are provided at standard and minimum interest rates to the borrower. This helps in security prices stabilization in the economy.

  • Provision Of Investment Avenues:

The capital market provides different long-term investment avenues to investors looking for long-term investments. It deals in the trading of long-term securities thereby raising and lending money for long periods. It provides and offers good interest rates options to the people for investing their surplus funds. People are encouraged to invest their funds and earn regular income in the form of interest.

  • Economic Growth And Development:

It helps in economic growth and development in the country. The capital market speeds up the economic growth rate in the country by providing funds among different sectors of the economy continuously.

It provides funds for the large infrastructural development requiring huge funds in the country. The long-term finance requirement of various business houses is met by the capital market. Thereby it improves the productivity of the economy by improving infrastructural facilities and generation of employment.

  • Minimizes Transaction Cost And Time:

The capital market facilitates the trading of long-term securities. It reduces the overall cost and time involved in the whole trading process. The entire trading process is conducted electronically through automated systems and programs which speed up the entire process. 

  • Continuous Availability Of Funds:

The capital market ensures the sufficient availability of funds in the economy. It continuously provides long-term investment avenues to investors. It is a liquid market as buyers and sellers of securities are continuously available here. It always circulates funds among the different sectors of society, thereby ensuring adequate availability of funds.

Features of Capital Market:

Here are the features of the Capital Market: 

1. Serves as a link between Savers and Investment Opportunities:

The capital market serves as a crucial link between the saving and investment process as it transfers money from savers to entrepreneurial borrowers.

2. Long term Investment:

It helps the investors to invest their hard-earned money in long-term investments.

3. Helps in Capital formation:

The capital market offers opportunities for those investors who have a surplus amount of money and want to park their money in some type of investment and also take the benefit of the power of compounding.

4. Helps Intermediaries:

While transferring shares and money from one investor to another, it takes the bits of help of intermediaries like brokers, banks, etc. thus helping them in conducting their business.

5. Rules and Regulations:

The capital markets operate under the regulation and rules of the Government thus making it a safe place to trade.

 

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