Capital Market — Meaning and Features

4. Capital Market — Meaning and Features

The capital market is that segment of the financial market in which medium- and long-term funds — ordinarily for a period exceeding one year, and for equity shares with no fixed repayment period at all — are raised and invested, through the purchase and sale of long-term financial instruments such as shares, debentures and bonds. Where the money market meets a borrower's short, temporary need, the capital market meets a business's or government's need for fixed, long-term capital — funding a new factory, expanding operations, or financing long-term government projects.

Features of the capital market:

1. Long maturity / no fixed maturity — capital-market instruments run for years, and an equity share, in particular, has no maturity date at all; it lasts as long as the company itself exists.
2. Deals in both new and existing securities — the capital market has two connected segments: the primary market, where securities are issued for the very first time, and the secondary market, where already-issued securities are subsequently bought and sold among investors (covered in full in Section 6 below, and in the very next chapter, Stock Exchange and SEBI).
3. Comparatively higher risk, potentially higher return — because funds are committed for the long term and returns (particularly on equity) are not guaranteed, capital-market instruments generally carry more risk than money-market instruments, but also the potential for a materially higher return.
4. Wider base of participants — while institutions dominate, the capital market is genuinely open to individual retail investors as well, unlike the largely wholesale/institutional money market.
5. Mobilises savings for productive, long-term investment — by channelling household and institutional savings into long-term business and government investment, the capital market plays a direct role in a country's capital formation and economic growth.
6. Regulated by the Securities and Exchange Board of India (SEBI) — SEBI regulates both the primary market (new issues) and the secondary market (stock exchange trading) to protect investors and ensure fair, transparent dealing.