ABSTRACT

The Capital market is a market for financial assets which have a long or
indefinite maturity. Generally, it deals with long term securities which have a maturity
period of above one year. Capital market may be further divided into three types
Industrial securities market, Government securities market and Long term loans market.
Industrial securities market is further divided into two types primary market or new issue
market and secondary market or stock exchange. Government securities market is also
called as Gilt-Edged securities market. It is the market where Government securities are
traded. Long term loans market is divided into three types Term loans market, Mortgages
market and Financial guarantees market.
Absence of capital market instruments acts as a deterrent to capital formation and
economic growth. Resources would remain idle if finances are not funneled through the
capital market.

The capital market instruments serves as an important source for the productive
use of the economys savings. It mobilizes the savings of the peoples for further
investment and thus avoids their wastage in unproductive uses.

It provides incentives to saving and facilitates capital formation by offering

suitable rates of interest as the price of capital.

It provides an avenue for investors, particularly the household sector to invest in

financial assets which are more productive than physical assets.

It facilitates increase in production and productivity in the economy and thus,

enhances the economic welfare of the society. Thus, it facilitates the movement
of stream of command over capital to the point of highest yield .

A healthy capital market instrument consisting of expert intermediaries promotes

stability in values of securities representing capital funds.