Q.What is the capital market? Explain its important features.

The capital market is defined by the length of time for which funds are raised, not by any single instrument.

The capital market is that part of the financial market which deals in the raising of medium- and long-term funds, generally with a maturity of more than one year, used by companies for fixed capital and long-term working-capital needs, and by governments for long-term development expenditure.

Features:

1. Deals in long-term securities — equity shares, preference shares, debentures and government securities.
2. Has two linked segments — the primary market (new issues) and the secondary market (trading of existing securities).
3. Channels savings from investors to companies and governments needing long-term capital.
4. Involves a network of intermediaries — merchant bankers, underwriters, stock exchanges, depositories.
5. Carries relatively higher risk and correspondingly higher potential return than the money market.
6. Is regulated in India principally by SEBI under the SEBI Act, 1992.

Defining the capital market only as "the stock market" — the stock market/exchanges are part of the secondary market, but the capital market also includes the primary (new issue) market and instruments like government securities that never trade on a stock exchange floor at all.