What is capital market and structure [Guide for Beginners]?

1. What is Capital Market?

Capital Markets are a sub-part of the Indian Financial Markets. Capital Market provides a platform to you for trading or investing in financial securities. These securities can be short term or long term in nature and may include investment instrument like bonds, equity shares etc. If you want to raise public funds for your company, you can issue shares in the Capital Market for the same. The markets these days are usually operated online, and all trades and investments take place electronically. A body known as the Stock Exchange facilitates all the trades and investments in the Capital Markets.

2. Types of Capital Market:

The Capital Market can be further classified into two categories. This classification is done based on the life of the instrument and also its trade duration. The two major categories of Capital Markets include Primary Market and Secondary Market.

• Primary Market: If you want to raise public fund for your company or organization by issuing equity shares, you can do it in the primary market. So, primary market is the place where companies issue securities for the first time.
• Secondary Market: After issuing of securities, if you want to trade in them, the same can be done through secondary markets. The secondary markets provide a platform to traders and investors for trading in securities and other investment instruments.

3. Structure of Capital Market

Capital Markets in India function both in formal and informal ways. The former one functions through stock exchanges and is regulated by the SEBI. Some of the common exchanges in India include National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Multi Commodity Exchange (MXC), National Commodity and Derivative Exchange (NCDEX) etc. The formal trading involves various participants including depositories, depository participants, brokers etc. However, there is also an informal market which is referred to as Grey Market or “Dabba Trading”. It does not have any regulatory body and no exchange is involved in the trades. It makes it a very risky market and considering the fact that it is illegal, it is better to avoid trading in the same.

The Indian Capital Markets are one of the most sought-after platforms for investment and trading. However, they come with their own set of risks. Therefore, it is very important to have an idea about your risk bearing capacity before entering this lucrative world. A risk profile analysis from a SEBI registered investment advisor can help you with the same. Also, it requires lot of knowledge and expertise in the financial markets. If you are new to the Capital Markets, it is better to take the help of a certified investment advisor who can help you by providing you research based recommendations for trading and investing in the markets.