Here is a compilation of essays on ‘Capital Market’ for class 9, 10, 11 and 12. Find paragraphs, long and short essays on ‘Capital Market’ especially written for school and college students.
Essay on Capital Market
Essay Contents:
- Essay on the Meaning of Capital Market
- Essay on the Features of Capital Market
- Essay on the Factors Governing the Development of Capital Market
- Essay on the Classification of Capital market
- Essay on the Functions of Capital Market
- Essay on the Securities in the Capital Market
- Essay on the Recent Changes in Capital Market
Essay # 1. Meaning of Capital Market:
Capital market is a central coordinating and directing mechanism for free and balanced flow of financial resources into the economic system operating in a country. It is an organised market mechanism for effective and efficient transfer of money capital or financial resources from the investing classes to the entrepreneur classes in the private or public sectors of our economy.
Capital market is directly responsible for two activities:
1. Mobilisation of national savings for economic development.
2. Mobilisation and import of foreign capital and foreign investment.
A nation embarking upon accelerated economic development and industrialisation has to make planned efforts to develop organised and healthy money and capital markets with an adequate institutional set-up.
Market for credit and business enterprises must go hand-in-hand to ensure quick industrialisation in a developing democratic country.
Demand for money capital come from:
(i) Public sector-government, state enterprises;
(ii) Private sector-agriculture, industry, commerce and consumers.
Supply of money-capital is made by:
(i) Investing public,
(ii) Investment intermediate,
(iii) Institutional investors,
(iv) Financial institutions,
(v) Commercial banks, and
(vi) Government.
The capital market is a mobiliser and distributor of money-capital:
(a) a national savings, and
(b) foreign capital.
It provides medium-term and short-term funds to industries. It deals in long-term debts and equity funds. It is a ready supplier of shares, debentures and debts at a fair rate in any magnitude.
Essay # 2. Features of Capital Market:
The distinctive features of Indian capital market may be summed up as follows:
1. An unorganised capital market existed before independence for lack of industrialisation in India.
2. The capital market scenario changed in 1948 with the establishment of the Industrial Finance Corporation of India through which the Government instituted facilities for providing long-term financial assistance.
3. The securities in the form of shares, irredeemable or perpetual debentures, irredeemable Government Promissory Notes provide long-term sources of capital market.
4. The long-term redeemable types of investment such as Government Promissory Notes, debentures, public deposits and redeemable preference shares also constitute capital market in India.
5. Underwriters, as the operators of supplying funds (e.g. merchant banking operators, issue houses who underwrite subscription to shares of new companies, etc.), take the responsibility of marketing of shares of various companies.
These underwriters including the different financial institutions and commercial banks are important constituents of capital market. Through their services, the bodies corporate become sure of their needs of capital.
6. The share markets or the stock exchanges as organised markets provide a form where buyers and sellers of securities meet and at the same time constitute a part of the capital market.
7. With an emphasis on industrial development and growth since 1956 and with the execution of the five-year plans, there has been a steady growth of the capital market in India.
8. The nest redeeming feature of the present capital market of India is the predominance of the State in the market. The big business houses are taking maximum advantage of the State-sponsored financial institutions.
Essay # 3. Factors Governing the Development of Capital Market:
1. Pool of reservoir savings for investment/capital formation/economic growth.
2. Presence of a network of financial and investment institutions for judicious use of savings and offer of specialised and essential services in the capital market.
There are three components of capital market:
1. New Issue Market-for new issues of securities.
2. Stock Exchange-for existing securities.
3. Financial Institutions-for offering medium term and long-term credit, and for underwriting of securities.
Essay # 4. Classification of Capital Market:
(i) Organized Capital Market:
The organized capital market is led by the Reserve Bank of India, banks, financial institutions and mutual funds. These institutions and all other intermediaries are regulated by SEBI and RBI. Government has its direct bearing on it through its economic and financial policies. As discussed above, the demand for long-term capital comes from the corporate sector and the government.
The sources of supply of funds are from individual investors, institutional agencies, government and international agencies. The supply from the foreign sector is in the form of mutual funds and NRI investments.
The organized capital market can be divided into the following two segments two segments:
(a) Primary Market:
Where new or fresh issues of capital are made by companies. There are three ways in which a company may raise capital-public issue, right issue and private placement. Public issues are widely traded in the stock exchanges. Such issue involves sale of securities to the general public.
In a right issue, further shares/debentures are offered to the existing shareholders. In a private placement, securities are sold privately to a selected group of investors in the form of collaboration agreements with other domestic/foreign companies. Thus, when a company wishes to raise capital it goes to the primary market by issuing equity as well as preference shares and debentures to public.
(b) Secondary Market:
Where outstanding securities can be resold to others through brokers and intermediaries. Stock exchanges constitute an organised market where securities issued by government, public bodies and joint stock companies are traded.
(ii) Unorganized Capital Market:
It consists of indigenous banks in towns, money lenders in rural areas, and lending pawn brokers. Other private leasing and finance companies, investment companies, chit funds form part of this system. They also mobilise savings and channelize them into investments. Though they are required to get themselves registered with the Register of Companies, RBI has no direct control over them
Essay # 5. Functions of Capital Market:
1. Mobilisation of financial resources on a nationwide scale.
2. Effective allocation of mobilised financial resources by directing the flow of funds to the points of highest yield and/or backward areas for balanced and diversified industrialisation so that optimum utilisation of available scarce financial resources can be secured. Thus, the long-cherished goals of our successful economic goals may be realised.
3. Securing of foreign capital and skill to fill up the deficit in the required resources for accelerated economic development. Foreign collaboration, in capital and know-how, is essential for developing the economy of our country.
Essay # 6. Securities in the Capital Market:
There are two major categories of securities in the capital market:
(a) Marketable securities include government securities, corporate securities, bonds, public sector units (PSU) and Unit Trust Mutual Funds. Public and institutions generally contribute towards such securities since these are issued by the government and companies in the public as well as private sector. Such securities are traded on the stock exchanges.
(b) Non-marketable securities consist of bank deposits, company deposits, loans and advances of banks and financial institutions, postal certificate and deposits. Such securities do not constitute an important part of the capital market due to their non-transferability.
Essay # 7. Recent Changes in Capital Market:
The changes that have occurred in the capital market of India in recent years may be outlined as follows:-
1. Government Policies and Measures:
The operational functioning of the stock exchanges in the country, one of the major constituents of this market, was modified in 1956 by the Securities Contracts (Regulation) Act. The Companies Act vas also thoroughly revised in the sane year and the Life Insurance Corporation of India was also established with a view to canalising the savings of the people towards investments.
Further, the Govt’s regulatory measures, which have effect on the capital market, extended to the Capital Issues (Exemption) Order 1969, Foreign Exchange Regulation Act 1973, and Monopolies & Restrictive Trade Practices Act, 1969, etc. The formation of the State Bank of India accelerated the financial assistance for rural development through the co-operatives via its integrated credit scheme.
2. Role of Promotional Institutions:
The establishment of promotional institutions like National Industrial Development Corporation (1954), State Industrial Development Corporations, Industrial Development Bank of India promoted and developed industries both in the public and private sectors with a programme of balanced regional growth.
All these institutions provided financial assistance at the initial stage in addition to the preparation of projects. The National small Industries Corporation (1955) and various State small Industries Corporations also provided financial help to the different small industries.
3. Role of Financial Institutions:
The Industrial Finance Corporation of India (1948), Industrial Development Bank of India (1964) established by the Central Government provided industrial finance to a number of large-scale industries both in the public and private sectors.
The Industrial Reconstruction Bank of India (1971) was established to revitalise the sick industries. In addition, State Financial Corporation’s (SPC’s), Industrial Credit and Investment Corporation of India (ICICI), a large number of Investment Trusts in the private sectors, the Unit Trust of India (1964) aid the Life Insurance Corporation of India (LIC) played a significant role in the field of industrial finance.
One noticeable feature is that all these institutions do underwriting functions also.
4. Role of Banking System:
The Indian banks are trading commercial banks and providing short-term financial accommodations. Recently, they are also providing term loans and doing underwriting functions. They often subscribe to the capital of financial institutions.
5. Role of Provident Funds, etc.:
The creation of provident funds for the employees of almost all establishments has become almost a compulsion by the Provident Fund Act 1952. The huge funds so collected go for investments according to the rules contained in the Act.
Again, huge funds available with the properties held under religious trusts also flow far investments far the Government Promissory Notes. Further, the general reserve funds and the redemption reserve funds, etc. from the companies also provide a big share to the capital market of our country.
6. Other Sources:
Different registered societies including co-operative societies also have their surplus funds for investments. Housing societies in urban areas are being built now-a-days and thereby huge investments are also involved in such buildings and constructions. The Life Insurance Corporation of India and various Investment Trusts in the private sectors are providing necessary capital in this project.