It is close to the month-end and you realize you need to go for your monthly shopping. Let’s say you need to get some snacks, fruits, clothes, personal care products, stationery, and utensils but you don’t have the time to go around the town visiting different shops for different items. Where would you go? Supermarket! A supermarket would be like your one-stop solution for all the things you need.
Now, think of the Indian Financial Market as a supermarket, where all kinds of financial assets/instruments can be bought and sold. Would you like to know more? I got you! In today’s blog, we will be understanding what is a Financial Market. Who are the market participants? Why is it important? and What is the structure of the Financial market in India? So, let’s get started!
What is the Financial Market?
I guess the name suggests itself. The Financial Market is a marketplace, where buying and selling of various financial asset/instrument take place. The financial assets being traded in this market can be stocks, bonds, currencies, commodities, etc. It brings together the buyers and the sellers who are interested to trade in a particular instrument. So, the stock market, bond market, forex market, commodities market, and any other market trading in financial instruments together, fall under a single umbrella, which is the Financial market. These markets operate in a proper structure but, more on that later.
Participants include investors (institutions, individuals, government, etc.) wishing to invest in various investment avenues, entities /governments wishing to raise funds, financial intermediaries (exchanges, brokerages, banks, mutual funds, etc.) and regulatory bodies (RBI, SEBI, etc.).
What is the importance of the Financial Market?
The market participants continuously interact with each other. Thus, funds flow efficiently from investors to businesses/government and vice versa.
Various financial instruments like stocks and bonds have given better returns than traditional options like FD’s or Savings. Improved transparency, proper regulation and rising financial literacy in India have ultimately encouraged people to trust and earn good returns by investing in markets.
I think the 2008 crisis would be the best example to understand this point. The financial market and economic growth go hand in hand. The performance of financial markets is reflected in the strength of the economy.
Structure of Indian Financial Market
The Capital market is further divided into Primary markets and Secondary markets.
Our Indian financial market has come a long way since Independence. It has opened up so many options for us to invest in and to take advantage of growing businesses and the national economy. It’s always a better idea to understand the overall structure and operations of the Financial market before we make trading or investing decisions.