Tuesday, December 12, 2017

Capital Markets

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Capital Market

Capital market may be defined as on organised mechanism for effective and efficient transfer of money-capital or financial recourses from the individuals or institutional savers to industrialist. The development of a effective capital market depends upon the availability of savings, well organised financial system and the entrepreneurship quantities of its people.

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Capital market is a market for long-term funds, just as the money market is the market for short-term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending term funds (medium-term and long-term funds). It does not deal in capital for purpose of investment.

The demand for long-term money capital comes predominantly from private sector manufacturing industries and agriculture and from the government largely for the purpose of economic development. As the central and state governments investment are not only on economic overheads as transport, irrigation and power development but also on basic industries and some times, even consumer goods industries, they require substantial sums from the capital market. The supply of funds for the capital market comes largely from individual savers, corporate savings, banks, insurance companies, specialized financing agencies and government.

Among institutions, we may refer to the following:

1. Commercial banks are important investors, but are largely interested in government securities and, to a small extent, debentures of companies.

2. LIC and GIC are growing importance in the Indian capital market, though their major interest is still in government securities.

3. Provident funds constitute a major medium of savings but their investments are mostly in government securities.

4. Special institutions set up since Independence, viz. the IFCI, ICICI, IDBI, UTI etc., all these aim at providing long-term capital to the private sector.

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