Capital Market refers to facilities and institutions arrangements through which long-term funds; both debt and equity are raised and invested. The Capital Market consists of development banks, commercial Banks and stock exchanges. The Capital market can be divided into two parts (a) Primary Market (b) Secondary Market
Primary Market: The primary market is also known as the new issues market. It deals with new securities being issued for the first time. The functions of Primary market is to facilitate the transfer of investible funds savers to entrepreneurs seeking to establish new enterprise or to expand existing ones through the issue of securities for the first time. The investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals. Methods of floatation new issue in the primary market are offer through Prospectus, Offer for Sale, Private Placement, Right issue etc.
Secondary Market: The secondary market is also known as the stock market or stock exchange. It is a market for the purchase and sale of existing securities. It helps existing investors to disinvest and fresh investors to enter the market. It also provides liquidity and marketability to existing securities.
Functions of Stock market or Stock Exchange are as follows:
- Providing liquidity and marketability to existing securities
- Pricing of securities
- Safety of transaction
- Contribution to economic growth
- Providing scope for speculation