Q.Explain the problems of the capital market in India.
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Start your 14-day free trial to unlock the full solution →The capital market deals in long-term funds through shares, debentures and bonds. In India it has expanded greatly, yet it still suffers from problems that limit its efficiency; four important ones are explained below.
1. Inadequate savings and shortage of long-term funds: A large part of India's population has low income, so household savings available for long-term investment are limited. Much saving also goes into physical assets like gold and land rather than into the capital market.
2. Excessive speculation: A great deal of trading in the stock market is speculative — buying and selling only for short-term price gains rather than genuine investment. This causes sharp price fluctuations and shakes the confidence of honest investors.
3. Lack of investor awareness and information: Many small investors do not have proper knowledge of company performance or of the risks involved, and reliable information is not always easily available, which discourages wider participation.
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