Types of Capital Market Service

In finance terms, there exist two types of market, i.e. money market and capital market. Money market deals with short term funds and capital market deals with long term funds. Capital market is further classified in the primary market and secondary market. Primary market deals with the new issues, its main focus is capital formation, whereas secondary market deals with existing securities.

The main function of the capital market is to link investors and savers. It is the capital market that is responsible for boosting the economy; it is the lifeline for the economy. Without capital market functioning, proper allocation of capital resources is not possible. It makes sure that enough funds are available for trading.

In India, there are a various capital market company providing capital market services so that our economy is able to function properly. It is important that a good capital company is chosen for these services. This is because a company with better expertise, flexibility and lesser red-tapism is in a better position to provide these services. These services include-

• Merchant Banking- Merchant banking is the blend of banking and consultancy services. It provides expert advice to its clients in relation to financial, marketing, managerial and legal matters. It charges a fee for its services. It is mandatory to be registered with SEBI to carry out the merchant banking services. An applicant has to certain full guidelines to get itself registered such as it should be a corporate body, it should not carry any other business, should have required infrastructure etc. One must be aware about these conditions before getting registered.

• Underwriting- Underwriting is basically an agreement with the financial agency under which it promises to subscribe the shares which are not subscribed by the public for certain commission. The agreement must be clear in terms of duration of agreement, amount of commission and other important details so that there is ambiguity. One have to register itself with SEBI to perform the functioning of Underwriting.

• Stock broker- Stock broker is certified by SEBI to participate in dealings of the securities on behalf of their client. It is the link between buyers and sellers of the securities. They charge commission for their services. There are well known stock brokers in India who performs the dual role. Registration with SEBI is mandatory to operate as stock broker in India.

• Credit Rating Agency- Credit rating shows the ability of the company to pay off its obligation. It is an indicator how financially strong a company is. It provides detail report which based on company’s previous borrowings with the overall aim to determine who well a company is equipped to meet its financial obligation. A good credit rating has the positive impact on the company’s market value.

These are some of the important Capital Market Services which are essential for the capital market to function smoothly. Capital market services makes sure that all the financial services in relation to long term funds are properly performed so that there is proper flow in the capital in the market and trading takes place without any hassle. Hence, Capital market service go long way for the economy.