Question

What is the role of the capital market in India?

Explain the role of the Indian Capital Market (any four).

Answer the following:

Explain the role of capital market in India.

Answer 1

Capital market is an important constituent of the financial system. It is basically a market for long-term funds (both equity and debt) raised within and outside the country.

The role of capital market in India can be explained as follows:

1. Mobilizes long term savings: There is an increasing demand for investment funds by industrial organizations and the government. But the availability of financial resources is insufficient to meet this growing demand. The capital market helps to mobilize long-term savings from various sections of the population through the sale of securities.
2. Provides equity capital: Capital market provides equity capital or share capital to entrepreneurs which could be used to purchase assets as well as fund business operations.
3. Achieve operational efficiency: Capital market helps to achieve operational efficiency by lowering the transaction costs, simplifying transaction procedures, lowering settlement timings in the purchase and sale of stocks.
4. Quick valuation: Capital market helps to determine a fair and quick value of both equity (shares) and debt (bonds, debentures) instruments.
5. Integration: Capital market leads to integration among real and financial sectors, equity and debt instruments, government and private sector, domestic and external funds, etc.