Financial Market in India: A Banking Awareness Guide
by Yuvi K - December 16, 2023
Financial Market in India- A Banking Awareness Guide
The financial market of India plays a dominant role in regulating economic activity of the country. This guide aims to provide an introduction to the Financial Market of India, what it consists of, and the different types of investments it offers.
What is Financial Market in India?
The Financial Market in India refers to the para-banking activities that comprise of capital markets, money markets, banking and other financial services. It enables businesses to obtain capital resources, to raise capital and to make investments in different forms of financial instrument.
The money market in India deals with borrowing and lending of short-term funds. It allows firms, governments and investors to borrow and lend money for short periods. It also provides a platform for matching borrowers and lenders with the help of financial instruments.
The capital market in India helps in the mobilisation of long-term funds. It deals with the trading of long-term debt instruments, such as bonds and stocks, and long-term investment assets such as mutual funds and pension funds.
Banks also play an important role in the Financial Market of India. They offer various services like Savings Agencies, which include the collection and payment of cheques and demand drafts; Credit Agencies, which include the provision of loans and investments in long-term assets; and Investment and Insurance Services, which include the formation of mutual funds and pension funds as well as the sale of life and general insurance products.
Types of Financial Instrument
Money Market Instruments
| Financial Instruments | Detailed Description |
|---|---|
| Call Money (कॉल मॅनी) | Call money is an interbank market for short-term funds. Banks borrow and lend from one another at a negotiated rate. The tenure for call money is usually 1-14 days. |
| Treasury Bills (ट्रेजरी बिल्स) | Treasury bills are commonly known as T-Bills. These are short-term financial instruments issued by the Central Government of India. They have a tenure of 91 days, 364 days and 1 year. |
| Commercial Paper (कमर्शियल पेपर) | Commercial paper is an unsecured money market instrument issued by companies. It is a short-term debt instrument with maturity ranging from 7 days to 1 year. |
| Certificate of Deposits (डिपॉजिट सर्टिफिकेट) | Certificate of deposits are certificates issued by banks against deposits for a specific period of time. They have a minimum tenure of 7 days and a maximum tenure of 1 year. |
| Repurchasing Agreement (रिपर्चेजिंग एग्रीमेंट) | Repurchasing agreements or repos are short-term investments with a maturity ranging from 1 day to 1 year. They are usually used to repurchase securities for cash. |
Capital Market Instruments
| Financial Instruments | Detailed Description |
|---|---|
| Stocks (शेयर्स) | Stocks or shares are long-term investments. They are represent the ownership of a company. They also provide dividend payments for the shareholder. |
| Bonds (बॉंड) | Bonds are long-term debt instruments issued by government and corporate entities. They pay interest at a fixed rate for a pre-defined period of time. |
| Futures (भविष्य) | Futures are a type of derivative instrument that are based on the underlying asset. They are contracts between two parties to buy or sell an asset at a pre-defined price at a specified date in the future. |
| Options (विकल्प) | Options are the right, but not the obligation, to buy or sell a certain asset at a predetermined price. The holder of the option can exercise the option at anytime before the expiry date. |
| Mutual Funds (म्यूचुअल फ़ंड) | Mutual funds are funds managed by professional fund managers. They invest in a wide range of securities, such as stocks, bonds, and other financial instruments. |
Regulators in Financial Market in India
The Financial Market of India is regulated by the Reserve Bank of India (RBI). The Securities and Exchange Board of India (SEBI) is the regulatory body for the securities market. The Insurance Regulatory and Development Authority (IRDA) is responsible for the regulation of insurance companies.
The Government of India plays an important role in the Financial Market of India by issuing policies and guidelines. It also regulates the banking sector, capital markets and other financial institutions.
Benefits of Financial Market in India
The financial market of India facilitates economic growth in the country. It helps in generating employment and provides opportunities for investments and savings. The financial market in India also enables businesses to obtain capital resources and to raise capital for expansion.
The financial market also helps in controlling inflation, providing liquidity to the economy and reducing the cost of capital. It enables greater financial inclusion, enhances transparency and mitigates credit risks. The financial market also encourages enterprise and innovation in the economy.
Conclusion
The Financial Market in India is an integral part of the country’s economy. It helps in mobilisation of funds, stimulates investment, facilitates financial inclusion and encourages economic growth. The regulators of the financial market also play an important role in ensuring its smooth functioning.
In conclusion, the financial market in India is a complex and dynamic domain, which requires careful regulation and monitoring. It has been continuously evolving over time and its importance for the Indian economy cannot be overstated.
