Q.Explain the meaning and features of the capital market.

Where the money market solves a short-term cash problem, the capital market solves a completely different one — funding the fixed assets and long-term growth every company eventually needs.

The capital market is the segment of the financial market dealing in medium- and long-term funds — funds raised for a period exceeding one year, and, for equity share capital, funds carrying no fixed repayment date at all. It is the capital market a company turns to for its fixed-capital needs — land, buildings, plant and machinery, and long-term expansion — through the issue of shares, debentures and bonds.

Its features are as follows. It deals in medium- and long-term instruments, carrying a correspondingly higher level of risk than the money market — but also, in principle, a higher potential return. It is, for any single transaction, somewhat less liquid than the money market, but the existence of an organised secondary market (the stock exchange) restores a meaningful degree of liquidity, letting an investor exit before maturity (or, for equity, at any time) by selling to another investor. It has two distinct components — the primary market, where new securities are issued and the company receives funds directly, and the secondary market, where existing securities change hands among investors. It draws in a genuinely wide base of participants — individual retail investors and high-net-worth individuals as well as institutions such as mutual funds, insurance companies, banks, and foreign portfolio investors — considerably broader than the largely institutional money market. Finally, …

Students sometimes state the capital market is 'illiquid,' without qualifying that the stock exchange specifically exists to restore liquidity — the correct nuance is 'lower liquidity per transaction than the money market, offset by an organised secondary marke …