Capital market is a market for long-term funds. Its focus on financing and finding investments contrasts with the money market. This is the institutional source of working capital finance. A capital market is a market for long-term debt and equity shares. The capital funds confusing equity and debt are issued and traded in this market. This also includes private placement sources of debt and equity and organised markets like the stock exchange. Thus we can define the capital market as a place where longer-maturity financial assets are bided. In the next part, we will discuss the features of capital market and capital market has two segments:-
1. Primary/New issue market
2. Secondary market/Stock market
Top 7 Features of Capital Market
Here we will discuss the features of capital market. Follow the below-mentioned points:
A developed capital market offers liquidity, i.e., a mechanism for an investor to sell financial assets. Although all capital markets provide some form of liquidity, the degree of liquidity is one of the factors that differentiates various markets.
The ultimate focus of the financial market is on the optimum factor use and its allocation for the most productive purposes. Efficient financial markets are characterised by the absence of information-based gain by the correct evaluation of assets and by maximisation of the marginal efficiency of capital.
3. Financial Innovation
Development in the marketing leads to financial innovation. Financial innovation refers to wide-ranging changes in the financial system. Introducing new financial institutions, market investments, services technology, organization and so on are parts of financial innovations.
4. Financial Engineering
Financial engineering refers to the skillful development and use of new financial technology, creative solutions and tools to cope with economic changes. It involves the construction, designing, and deconstruction of financial investments and possesses to reduce risk and maximise profit quickly, e.g., Deep discount bonds issued by ICICI and IFCI.
5. Increasing Investor’s Confidence
Developed markets help in raising investor confidence by increasing the effectiveness of surveillance and increasing investor sophistication.
6. Reduction in Cost
Capital markets reduce the search and information costs of transacting. Search costs represent direct costs such as money spent to advertise, the desire to sell or purchase financial assets, and implicit costs.
7. Broad, Wide and Deep Market
When attracting large amounts of funds and focusing on all types of investors, the market is a broad, wide, deep market.