- Link between Savers and Investment Opportunities:
Capital market is a crucial link between saving and investment process. The capital market transfers money from savers to entrepreneurial borrowers.
- Deals in Long Term Investment:
Capital market provides funds for long and medium term. It does not deal with channelising saving for less than one year.
- Utilises Intermediaries:
Capital market makes use of different intermediaries such as brokers, underwriters, depositories etc. These intermediaries act as working organs of capital market and are very important elements of capital market.
- Determinant of Capital Formation:
The activities of capital market determine the rate of capital formation in an economy. Capital market offers attractive opportunities to those who have surplus funds so that they invest more and more in capital market and are encouraged to save more for profitable opportunities.
- Government Rules and Regulations:
The capital market operates freely but under the guidance of government policies. These markets function within the framework of government rules and regulations, e.g., stock exchange works under the regulations of SEBI which is a government body.
An ideal capital market is one:
- Where finance is available at reasonable cost.
- Which facilitates economic growth.
- Where market operations are free, fair, competitive and transparent.
- Must provide sufficient information to investors.
- Must allocate capital productively.
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