Role of Stock Exchanges in Capital Market of India

1. Mobilization of Savings?

Capital Markets are one of the most sought-after platforms for institutional investors as well as individuals. To ensure investor’s protection, all the trading transactions in the capital markets are regulated with proper regulations and rules. This also helps in consolidating the confidence of small savers and individual investors. In this way, stock exchanges help in attracting savings from large number of investors in the capital markets.

2. Promoting Capital Formation

The mobilization of funds from the savers by the capital markets is channelized to various industries which are involved in production and manufacturing of various goods and services which is beneficial for the economy. This enhances the capital formation and development of the national assets. This channelization of savings into appropriate avenues of investment is one of the primary roles of the stock exchanges.

3. Liquidity of Investment

As an investor, it is very important to consider the liquidity of your investment. This liquidity is provided by the stock exchanges. Investors can liquidate their securities and other capital market assets anytime during the trade hours and days. Therefore, stock exchanges help in ensuring liquidity of investment. The online trading carried out on the stock exchanges after dematerialization of securities has transformed the trading experience. It helps investors in buying, selling and transferring their investment seamlessly.

4. Investment Safety

One of the most important role of stock exchange in ensuring investment safety to the investors. After the dematerialization act, trading on stock exchanges has been completely online. The Securities and Exchange Board of India (SEBI) keeps an eye on the functioning of exchanges and keeps on identifying new loopholes in the system. Several measures are enforced at times to overcome the same and ensure investment safety. The authorities at exchanges try their best to curb speculative practices and minimize the risk for investors to safeguard their confidence.

5. Wide Marketability to Securities

In the earlier days, trading on stock exchanges was done using physical security certificates. The trading was limited to the office of the stock exchange and all dealings were carried out over there only. Investors from distant parts of the country remain in the dark about the price movements on exchanges. After the establishment of online trading system, investors can keep an eye on the price movements and make the most out of all the price movements in the capital markets. The modern stock exchanges backed by information technology have provided wide marketability to the securities.

6. Funds for Development Purpose

As we have already discussed, stock exchanges help in mobilization and channelizing of funds from savers to various industries. Many times, these industries are the one which are involved in government development projects including infra companies, railways, telecommunications etc. Stock exchanges help in constant evaluation of government securities.

7. Barometer of National Economy

The stock exchanges are considered to be the barometer of a nation’s economy. The economy of a country is economically symbolized by the most significant stock exchange of that particular country. These stock exchanges help in representing the progress and situation of a nation’s economy at national and international levels. For instance, Bombay Stock Exchange or BSE is often considered by overseas investors to have an idea about the economic condition of our country.

The stock exchanges help the capital markets in a number of ways through their diversified economic services including liquidity of investments, marketability, evaluation of securities etc. However, before you step into the lucrative world of stock exchanges and capital markets, it is better to get your risk profile evaluated to have an idea about the amount of risk you can bear in the market.