Importance and Functions

The industrial development of any country depends on an organised, well developed and efficient capital market. Though the major determinant of savings is national income, the provision of certain incentives for investment can enhance total savings out of a given level of the national income. The capital market provides such incentives by creating a variety of financial assets and by ensuring their liquidity and marketability. It can help increase the propensity to save.

In the process of growth, the capacity of certain class of people and institutions to save increases. They have varied asset preferences, which also change form time to time. The needs of entrepreneurs who actually use the savings for productive purposes are also varied. The capital market satisfies the tastes of savers and the needs of investors through its financial instruments and institutions.