Financial Market in India:Meaning, Structure, Types, Instruments (2024)

Structure of Financial Market in India

The financial market in India can be broadly divided into two main components, that is, the money market and the capital market. Wherein, the capital market is further divided into primary and secondary markets. Let’s understand more about the structure of the financial market in India.

Money Market

The money market acts as a marketplace for short-term borrowing and lending. At the wholesale level, it involves large-volume transactions between traders and institutions. At the retail level, the money market involves mutual funds bought by individual investors and accounts opened by bank customers.

The assets traded in the money market are risk-free and highly liquid. As the maturity period is less, the risk of volatility is low and the returns are low as well.

Common examples of instruments traded in the money market are treasury bills, commercial papers, certificates of deposits, bankers’ acceptance, etc.

Capital Market

As opposed to the money market, capital markets deal in long-term securities. The securities that have a maturity period of more than a year are traded in the capital market. Subsequently, the market trades in both debt as well as equity-oriented securities.

Participants of the capital market include Foreign Institutional Investors (FIIs), financial institutions, NRIs, individuals, and so on. The capital market is further divided into Primary Market and Secondary Market.

Let us learn about both the primary and secondary markets through the following points of differences between the two.

Primary MarketPoints of DifferencesSecondary Market
New Issue Market (NIM)Also known asAfter Issue Market (AIM)
Origination, underwriting, and distributionFunctionsBuying or selling of securities between the investors without any involvement of the issuing company
Stocks are issued for the first timeRole / ImportanceStocks are traded once issued
Investment BanksIntermediariesBrokers
Directly by the companies to the investorsSale of SecuritiesBought and purchased amongst investors and traders
Price of SharesFixed at par valueChanges depending upon the supply and demand of shares
IPO (Initial Public Offering), bonus and right share issues, private placement, preferential allotment etc.ExamplesStocks, bonds, derivatives, etc.
Financial Market in India:Meaning, Structure, Types, Instruments (2024)

FAQs

What is the structure of the Indian financial market? ›

The structure of the Indian financial system can be broadly divided into two parts: the organized sector and the unorganized sector. Organized sector includes formal financial institutions such as banks, insurance companies, NBFCs, mutual funds, stock exchanges, and pension funds.

How will you classify financial markets in India? ›

The credit market, the money market, the foreign exchange market, the debt market, and the capital market are the key financial markets in India.

How many financial instruments are there in India? ›

Financial instruments may be divided into two types: cash instruments and derivative instruments. Financial instruments may also be divided according to an asset class, which depends on whether they are debt-based or equity-based. Foreign exchange instruments comprise a third, unique type of financial instrument.

What is the structure of capital markets in India? ›

Capital markets structure is made of primary and secondary markets. Primary markets consist of companies that issue securities and investors who purchase those securities directly from the issuing company. These securities are called Initial Public Offerings (IPO).

How many types of financial markets are in India? ›

The financial market in India can be broadly divided into two main components, that is, the money market and the capital market. Wherein, the capital market is further divided into primary and secondary markets.

What is a financial market structure? ›

Financial market structure is about how legislation, technology, and trading rules and traditions influence trading strategies and market quality, such as efficiency and liquidity.

What type of market is Indian market? ›

In India, the stock market can be broadly classified into two types: the equity market and the derivatives market.

What are the instruments of the financial market? ›

A financial instrument is any asset that retains capital and may be traded on the market. Cheques, stocks, shares, bonds, futures, and options contracts are all types of financial instruments.

Who controls the financial market in India? ›

The Reserve Bank regulates financial markets within the overarching statutory framework of the Reserve Bank of India Act, 1934, the Government Securities Act, 2006, Foreign Exchange Management Act, 1999, the Bilateral Netting of Qualified Financial Contracts Act, 2020 and the Payment and Settlement Systems Act, 2007.

Who regulates financial instruments in India? ›

The Reserve Bank of India (RBI) is India's central bank. It manages credit supply, regulates bank operations, and helps maintain a healthy financial system. The Securities and Exchange Board of India (SEBI) is the regulatory authority responsible for overseeing the securities market in India.

How many types of instruments are there in India? ›

Instruments most commonly used in Hindustani classical music are the sitar, sarod, tambura, sahnai, sarangi, and tabla; while instruments commonly used in Karnatak classical music include the vina, mrdangam, kanjira, and violin.

What is the Indian financial system in financial management? ›

The Indian financial system is what drives the funds between savers and investors. All services from banks, funds, insurance, pensions, etc., come under the financial system. These services benefit India's citizens. The Indian financial system directs funds from the people who want to save and invest.

What are the capital market instruments in India? ›

Capital market instruments encompass a broad range of financial tools, including equities, bonds, derivatives, ETFs, and foreign exchange instruments. They play a crucial role in fundraising for entities and offering diverse investment opportunities, crucial for economic growth, risk management, and wealth generation.

What is the structure of primary and secondary markets in India? ›

The primary and secondary markets in India function as they do anywhere: In the primary market, the investor purchases shares or bonds directly from a company in a one-time transaction; in the Secondary Market, investors buy and sell the stocks and bonds among themselves, and can do so an infinite number of times.

What is capital market in Indian financial market? ›

The capital market is a market dealing in medium and long term funds such as borrowings from banks and financial institutions, borrowings from overseas markets, and raising capital by issue of various securities such as bonds, shares, and debentures.

Is Indian financial system market based? ›

3.2 Structure of Indian financial system

The structure of the Indian financial system comprises a total of two elements- i) organized markets and ii) unorganized markets.

Who controls Indian financial market? ›

The Reserve Bank regulates financial markets within the overarching statutory framework of the Reserve Bank of India Act, 1934, the Government Securities Act, 2006, Foreign Exchange Management Act, 1999, the Bilateral Netting of Qualified Financial Contracts Act, 2020 and the Payment and Settlement Systems Act, 2007.

What is the function of financial market in India? ›

Role of the Financial Market

To facilitate the final exchange of goods and services such as contactless payments systems, foreign currency, and so on, financial markets transfer money to the highest risk-adjusted return rate. This market allows companies to raise new equity to fund capital expenditure and expansion.

What is the structure of banking financial institutions in India? ›

The Indian Banking Structure is broadly classified into Scheduled Banks and Non-scheduled banks. The scheduled banks are further divided into cooperative banks and commercial banks. While, under the commercial banks, we have Public Sector Banks, Regional Rural Banks (RRBs), and Foreign Banks.

References

Top Articles
Latest Posts
Recommended Articles
Article information

Author: Allyn Kozey

Last Updated:

Views: 5671

Rating: 4.2 / 5 (63 voted)

Reviews: 94% of readers found this page helpful

Author information

Name: Allyn Kozey

Birthday: 1993-12-21

Address: Suite 454 40343 Larson Union, Port Melia, TX 16164

Phone: +2456904400762

Job: Investor Administrator

Hobby: Sketching, Puzzles, Pet, Mountaineering, Skydiving, Dowsing, Sports

Introduction: My name is Allyn Kozey, I am a outstanding, colorful, adventurous, encouraging, zealous, tender, helpful person who loves writing and wants to share my knowledge and understanding with you.