composition on capital market -
March 22nd, 2009
Capital market is a market for long-term funds, just as the money market is the market for short-term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending term funds. It does not deal in capital market but is concerned with the raising of money capital for the purpose of investment.
The demand for long-term money comes from private sector manufacturing industries and agriculture and from the government largely for the purpose of economic development. As the central and the state governments are investing not only on economic development as transport, irrigation and power development but also on basic industries, they require substantial sum from the capital market.
The supply of funds for the capital market comes largely from individual savers, corporate savings, banks, insurance company specialized financial agencies and the government.
Among institutions, we may refer to the following:-
• Commercial banks are important investors, but are largely interested in government securities and to a small extent, debentures of companies;
• Provident funds constitute a major medium of savings but their investment too are mostly in government securities and;
• Special institutions set up since independence , viz IFCI , ICICI, IDBI, UTI, etc generally called development financial institution (DFI)-aim at supplying long-term capital to the private sector.
Like all markets, the capital market is also composed of those who demand fund (borrowers) and those who supply funds (lenders).An ideal capital market attempts to provide adequate capital at reasonable rate of return.
All India Development Finance Banks
Industrial Finance Corporation of India (IFCI)
The government of India set up the Industrial Finance Corporation of India (IFCI) in July 1948 under a special Act. The Industrial Development Bank of India, scheduled banks, insurance companies, investment trust and co-operative banks are the share holders of I.F.C.I. The Union government has guaranteed the repayment of capital and the payment of a minimum annual dividend.
Function of I.F.C.I
The corporation performs three important functions:
• It grants loans and advances to industrial concerns and subscribes to the debenture floated by them.
• It guarantees loans raised by the industrial concerns in the capital market.
• It underwrites the issue of stocks, shares, bonds and debentures of industrial concerns provided such stocks, shares, etc are disposed of by the corporation within a period of seven years from