Financial Market for Beginners - Structure & Regulators of Financial Market in India

At the point when we buy/sell stocks, this trade occurs in a financial market. Individuals trading in forex, derivatives, commodities and so forth do as such in a financial market. Indeed, even our banks, insurance companies, mutual funds, pension trusts and so on are a participant of financial market.

In straightforward term, we can say that a "financial market" is an expression used to signify the all out infrastructure which encourages the trade of financial securities.

Financial securities can resemble currency, bonds, stocks, derivatives, commodities, forex and so on.

FINANCIAL MARKET

Financial market empowers proficient trade of securities, and move of funds, among lenders and borrowers. It is the financial market which makes securities for investment. Individuals who have excess funds invests in these securities to earn return on their investments.

In a financial market, there is an unending movement of loaning and getting occurring among lenders and borrowers.

Lenders: These are individuals who have excess funds. They invest their money in securities accessible in the financial market. The lenders in a financial market can be the number of inhabitants in an economy (like business, government, households and so on).

Borrowers: These are individuals who are needing funds. They are in capital deficit. They acquire money from lenders through financial market constantly intermediaries. Once more, the borrowers in a financial market can be the number of inhabitants in an economy (like business, government, households and so forth).

Market Intermediaries: These are the organizations who work in a helping job. They execute the capacity of asset collection from lenders, and disbursement of capital to borrowers. They additionally handle financial securities (stocks, mutual asset units, bonds, deposit certificates and so on) for the benefit of the moneylender and borrowers. In financial market, intermediaries can be banks, brokers, custodians, depository, depository participant etc. Without intermediaries, financial market can't run flawlessly and proficiently.

(Also Read: Gilt Funds)

NEED OF FINANCIAL MARKET

For a second, envision a circumstance where you are living in an economy which has no financial market.

You are an individual who has some overflow money. You might want to invest it for growth. Likewise, there is a business which needs funds to grow. The business might want to acquire money, and is prepared to pay an interest.

You live in Mumbai and business is situated in New Delhi. As there is no financial market, the solitary way you can invest is without anyone else looking through a commendable borrower. For the business, the circumstance is same. It can acquire money by just self-search of a decent loan specialist.

This sort of market is wasteful. Thus numerous lenders and borrowers may free the opportunity of investing and getting. Such markets are not economic-movement well disposed.

In presence of a proficient financial market, a similar undertaking becomes simple. A financial market becomes an all in one resource for all lenders/investors and borrowers. Henceforth the market becomes a compelling source for capital generation and investment.

STRUCTURE OF FINANCIAL MARKET IN INDIA

There are two primary sorts of financial market where dominant part of trading is occurring. The first is money market and second one is capital market.

1. Money Market

Money market is a sort of market which trade in such securities which has a short maturity periods (short of what one year). Such securities are regularly risk free. As their maturity periods are smaller (more liquid), and the risk of loss (unpredictability) is likewise smaller, subsequently their yield is additionally less. Common men for the most part invest in money market through money market mutual funds.

Securities which are traded in money market are T-Bills, Certificate of Deposits (CD's), Commercial Papers (CP's) , Repo and so on.

2. Capital Market

On one hand Indian household has small savings. On other hand corporates need funds to meet their capital necessities. In the event that an Indian household need to invest in business, it very well may be done through the security market by buying stocks, bonds from the capital market (stock market). Capital market has further two branchings.

(a) Primary Market: This market is likewise called the new issue market. Company raise capital here to support its business action. In the primary market, companies issue their securities unexpectedly to public (in form of shares or bonds). This is the market where the IPOs are issued by companies.

(b) Secondary Market: Households who've purchased the security in primary market can sell (exit) it in secondary market. At the point when we state "stock exchange" we are really alluding to the secondary market. Here the all around issued securities are traded among buyers and sellers independent of the issuers intervention. In the event that the issuer (company) needs to buyback its shares, they need to do it in secondary market.

3. Banking System

Banks and financial establishment is a piece of financial market. The banking system consists of commercial banks, co-operative banks, payment banks, small finance banks and so on All the banks are by and large regulated by the Reserve Bank of India (RBI). A wide range of banks alongside RBI makes a banking system.

The primary capacity of banks is to collect deposits from public (lenders with surplus money), and give credits. The credits are offered in form of loans to people, companies and so on who need capital. In this job, the bank acts as an intermediary.

While giving the loans, banks likewise checks the borrowers credit value. On the off chance that a borrower is credit commendable, advance will be dispensed.

4. Pension Market

This market obliges the need of old. It gives securities customized to profit the old populace. As on today, still dominant part of Indian customers don't profit retirement benefits. Pension market expects to incorporate all such individuals who has still not come under the ambit of retirement benefits.

Individuals who work for government, or are employed by privately owned businesses are covered under NPS, EPF or PPF. In any case, a vast larger part of self-employed individuals don't profit the retirement benefits. Pension market plans to incorporate even them here.

5. Insurance Market

Like pension market, insurance market additionally has a small infiltration in India. Individuals who buy insurance basically do it to get tax benefits (like life coverage). There are other who buy insurance as it is mandatory (like motor insurance). However, insurance market is developing. With ascent of financial literacy, and ascend in purchasing power of the populace, insurance products are selling more nowadays. Insurance products like medical policies, motor policies, term plans and so on are picking demand.

6. Foreign Exchange Market

Forex (Foreign Exchange) Market is an online spot where individuals can trade in currencies. As this market manages currencies, it is the most liquid market of all. Subsequently traders and speculators love Forex market.

As exchange rate of currencies change, individuals trade between currencies to exploit the rate fluctuations. The trade occurs in Foreign Exchange Market. Each country has their own Forex market. All such markets are connected online – offering ascend to a monster, decentralized global forex market.

Indian law licenses forex trading just in currency derivatives. In India, RBI and SEBI carefully controls trading in foreign currencies. Henceforth, Forex Trading in India isn't as well known as stock market or money market.

However, Forex trading actually occurs in India. According to RBI rules, forex trading through currency derivatives is permitted. Currency sets accessible for subordinate trading are USD-INR, EURO-INR, GBP-INR, JPR-INR.

Currency trading is permitted in NSE, BSE and MCI and so on exchanges in India.

To begin trading, one should open the accounts with those brokers who have been allowed to trade in currency derivatives. Scarcely any such endorsed brokers are listed underneath. A more comprehensive list is accessible in SEBI's website.

• Angel Broking Limited.
• Axis Bank.
• Bajaj Financial Securities.
• Bank of India.
• Bank of Baroda.
• ICICI Bank.
• HDFC Bank.

And so on

7. Commodity Market

Commodity trading happens in the accompanying exchanges in India:

1. MCX : Multi Commodity Exchange

Bullion, metals, fiber, energy, spices, plantations, pulses, petrochemicals, cereals among others.

2. ICEX : Indian Commodity Exchange

Gold, silver, diamond, copper, lead, crude oil, natural gas, mustard, soya bean, jute, iron metal.

3. NCDEX : National Commodity and Derivatives Exchange

Cereals, pulses, strands, oils and oil seeds, spices, gold, silver, steel, copper, crude oil, and brent crude oil among others.

4. NMCE : National Multi Commodity Exchange

Castor seeds, rapeseed, mustard, soya bean, sesame, copra, black pepper, gram, gold, aluminum, rubber, copper, lead, zinc, jute, and coffee among others.

REGULATORS OF FINANCIAL MARKET

The way toward managing the Indian financial market is a Top Down methodology. It begins from the Finance Ministry of India. The head of finance ministry is the Finance Minister. Under the umbrella of Finance Ministry comes the accompanying regulatory bodies:

RBI: Reserve Bank of India (RBI) makes and controls the Monitory policies, Forex policies, Credit policies, and furthermore manages all banks. The control of RBI over these policies thusly impacts the stock of money and credit in the market. This control thus impacts the interest rates (of deposits, loans and so on).

SEBI: The Security and Exchange Board of India (SEBI) is the fundamental regulatory which controls the primary and secondary market (stock exchange and so forth).

IRDAI: The Insurance Regulatory and Development Authority of India (IRDAI) controls the insurance sector of India. It likewise offers permit to insurance companies. IRDAI likewise controls the "Tariff Advisory Committee". This committee thus chooses the price of general insurance products. IRDAI likewise regulates how the insurance funds should be invested by insurance companies.

PFRDA: The Pension Fund Regulatory and Development Authority (PFRDA) regulates and supervises the pension sector of India. It was PFRDA who has planned the structure of pension products like NPS, EPF and PPF. It is PFRDA which has chosen the constituents of National Pension System (NPS). PFRDA has the duty of registering participants of pension fund like custodians, CRA, trustee bank, fund managers and so on.

Final Words

The Indian financial market is structured in a manner to promote saving, investment and asset use. Finance ministry of India creates effective financial policies for the public.

The participants of the financial market executes those policies for the bigger great of the public and the economy all in all. A vigorous and effective financial market isn't just useful for the home country, yet it additionally helps different economies of the world (as all are associated nowadays).

The Indian financial market has built up much over the past 70+ years. The manner in which Indian economy took care of the worldwide financial meltdown of 2008-2009 is a major model.

(Also Read: Gilt Edged Market)