Every company has two options to raise capital. Stock Markets give investors an equitable, transparent, systematic securities market with advanced trading mechanisms. In addition, liquidity allows investors to sell securities quickly and easily. This is a significant advantage of investing in stocks over other less liquid investments like Property or immovable assets. In this article, we will discuss the purpose of the Stock Market.
Brief-Purpose of Stock Market
The history of the web has demonstrated that the value of stocks or other assets can impact the economic dynamics and be an indicator of social mood. A rising economy has a strong stock market.
For Instance, Increased share prices are associated with higher business investment. In addition, the wealth and consumption of households are also affected by share prices. Therefore, RBI tends to monitor the behavior and control of the stock markets and the operation of financial system functions.
The seamless operation of these activities promotes economic growth because lower costs and more significant enterprise risks encourage the production of goods, services, and employment. This is how the stock market contributes to greater prosperity.
Latest events, such as the Global Financial Crisis, have led to greater scrutiny of the effects of the structure and functioning of stock markets. This includes the stability of the stock market and the transmission of systemic risks.
Now we will discuss the Purpose of the Stock Market:-
Purpose of the Stock Market (Capital and Investment)
Stock markets are the core of the global financial system. Businesses can access the stock markets to purchase and sell stocks of companies through charities, foundations, pension funds, and others. To protect investors from fraudulent trading and preserve the integrity of our financial system. Below mentioned are the essential purpose of the Stock Market-
1.For Business Operations
Companies can raise capital for operational and strategic reasons. The stock market helps the companies in expanding their business operation. For example, companies can use Stocks for merger and acquisition transactions. In addition, stock options, employee ownership plans, and restricted stock are all stock-based compensation tools companies use to attract and retain qualified employees.
Financial planning is centered around stock markets. Stocks can be held directly through your online brokerage account or indirectly via mutual funds. There are hundreds of stocks available in many industries and countries. Growth stocks are highly volatile but can offer substantial capital gains for aggressive investors. Conservative investors can also invest in utility stocks or preferred stocks.
These stocks pay regular cash dividends, but they are less volatile. If you don't have the time or desire to research each stock, professionally managed mutual funds can be purchased. Exchange-traded funds can be purchased, tracking different indexes and trading precisely like stocks.
3.To enhance economic efficiency
The heart of free-market economics is the stock markets. They provide capital to companies that produce products or deliver the services customers require. Markets reward companies that increase market share and penalize companies that fail to innovate or respond quickly to threats. Shareholders only invest in companies that can manage costs and grow profits.
Indian stock market plays a crucial role in channeling money from the investor to the industries and vice versa. Stock Market help in-
- Issuing securities,
- Payment of dividends
- Redemption of securities,
- Issuance of other financial instruments etc.
5.Providing Perpetual Market
6.Providing Security in Transactions and Investments
Transactions in the stock market are carried out only with adequate transparency amongst their members and under strict rules and regulations stipulating the time and procedure of delivery and payment. Therefore, it provides a high degree of security to the transactions done in the stock market.
7.Proper allocation of funds
With the stock market transaction process, funds flow from less profitable to more profitable enterprises and get more growth opportunities. In this way, the financial resources of the economy are best allocated.
In a nutshell, we can say that the primary purpose of the Stock Market is to provide a market platform and access to investors from all over the country on one platform and follow the working pattern of international financial markets. With the advancement of stock trading mechanisms and changing regulatory atmosphere, it is necessary to monitor the working of stock exchanges and the regulatory framework of stock exchanges. With the help of the stock market, the investor gets the platform to invest in a safer form.