Capital Market Unveiled: UPSC Notes & Digital Explorer

Introduction & Summary

The Capital Market is a crucial segment of the financial system where long-term funds (typically for more than one year) are raised by corporations, governments, and other entities, and where these funds are traded. It channels savings and investments between suppliers of capital, such as retail investors and institutional investors, and those who are in need of capital, like businesses, government, and individuals. A well-functioning capital market is vital for economic development, facilitating capital formation, efficient resource allocation, and economic growth. It primarily consists of the primary market (for new issues) and the secondary market (for trading existing securities).

Source: IGNOU Study Material, Ramesh Singh - Indian Economy

6.3.1. Functions of Capital Market

Mobilization of Long-Term Savings

Provides a platform for individuals, households, and institutions to invest their surplus funds for long durations via shares, debentures, bonds, and mutual funds.

Example: ELSS mutual fund for tax saving and wealth creation.

Allocation of Capital to Productive Uses

Directs mobilized savings into productive investments, guiding capital to sectors with high growth potential through market pricing.

Example: Tech startup raising funds through an IPO for R&D.

Facilitating Capital Formation

Channels savings into long-term investments, directly contributing to the increase in real capital assets like factories, machinery, and infrastructure.

Price Discovery

Interaction of buyers and sellers in the secondary market helps determine the fair price of securities based on demand, supply, and available information.

Providing Liquidity

The secondary market enables investors to sell securities and convert them into cash, providing liquidity to long-term investments.

Minimizing Transaction Costs & Information Asymmetry

Organized capital markets reduce transaction costs and make information more readily available to participants, promoting fairness.

Source: NCERT Class 12 Business Studies Part II - Chapter 10: Financial Markets, Sanjiv Verma - The Indian Economy

6.3.2. Primary Market (New Issues Market)

The primary market is where new securities (shares, bonds, etc.) are issued for the first time by companies, governments, or public sector institutions to raise capital. It is also known as the New Issues Market.

Initial Public Offerings (IPOs) Process Flow

1

Appointment of Merchant Banker(s)

To manage the issue and conduct due diligence.

2

Due Diligence & DRHP

Merchant banker prepares & files Draft Red Herring Prospectus (DRHP) with SEBI.

3

SEBI Observation

SEBI reviews the DRHP for adequacy of disclosures.

4

Roadshows & Marketing

Generate investor interest to build demand for the issue.

5

Filing of RHP/Prospectus

Red Herring Prospectus or Prospectus filed with Registrar of Companies (ROC).

6

Issue Opening & Closing

The issue opens for public subscription for a specified period.

7

ASBA Mechanism

Applications Supported by Blocked Amount; mandatory for IPOs.

8

Allotment & Listing

Shares are allotted; securities are then listed on stock exchanges for trading.

Types of IPOs & Other Primary Market Offerings

Book Building Process

Issuer offers a price band, and investors bid for shares at various prices. Final issue price (cut-off price) is determined based on demand. This is the dominant method for IPOs in India.

Fixed Price Issue

The issuer determines a fixed price for the securities in consultation with merchant bankers, and investors subscribe at this price.

Other Primary Market Offerings & Key Roles

Follow-on Public Offers (FPOs): When an already listed company makes a subsequent issue of shares to the public. Process is similar to an IPO.
Rights Issue: An invitation to existing shareholders to purchase additional new shares in the company, usually at a discount, in proportion to their existing shareholding.
Private Placement: Selling securities directly to a select group of investors (e.g., institutional investors, high net-worth individuals) rather than to the public at large. Faster and less expensive.
Role of Merchant Bankers (BRLMs): Also known as Lead Managers or Book Running Lead Managers. They manage and underwrite public issues, conduct due diligence, prepare offer documents, assist in pricing, marketing, and allotment. Regulated by SEBI.
Role of Underwriters: Financial institutions that agree to buy any unsubscribed portion of a public issue, thereby guaranteeing the issuer that the full amount of funds sought will be raised. They bear the risk of the issue not being fully subscribed.

Source: SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, IGNOU BCOM EIF

6.3.3. Secondary Market (Stock Exchanges)

The secondary market is where existing securities are bought and sold among investors. It provides liquidity and marketability to already issued securities. Stock exchanges are the primary platform for secondary market trading.

Key Roles & Functions

Providing Liquidity and Marketability
Price Discovery
Safety of Transaction (Regulatory Framework)

Contributor to Economic Growth (Disinvestment/Reinvestment)
Spreading of Equity Cult
Platform for Hedging (Derivatives)

Major Stock Exchanges in India

BSE (Bombay Stock Exchange)

Established 1875, Asia's oldest stock exchange.
Became the first listed stock exchange in India.
Key index: S&P BSE Sensex.

NSE (National Stock Exchange)

Incorporated 1992, commenced operations in 1994.
Largest stock exchange in India by trading volume.
Pioneered screen-based electronic trading in India.
Key index: Nifty 50.

Stock Market Indices

Sensex (Sensitive Index - BSE)

Comprises 30 large, liquid, and representative stocks listed on BSE.
Base year: 1978-79, Base value: 100.
Calculated using the "Free-float Market Capitalization" method.

Nifty 50 (NSE)

Comprises 50 large, liquid stocks representing various sectors of the Indian economy.
Base year: 1995 (November 3rd), Base value: 1000.
Calculated using the "Free-float Market Capitalization" method.

Significance: Reflect investor sentiment and market direction, used as a benchmark for mutual funds and ETFs, help in understanding economic impact.

Trading Mechanisms & Intermediaries

Demat Accounts

Electronic accounts that hold securities (shares, bonds, mutual fund units, etc.) in a dematerialized form. Mandatory for trading in listed securities.

Brokers

Members of stock exchanges authorized to buy and sell securities on behalf of investors. Types: Full-service brokers (offer trading, research, advisory) and Discount brokers (low-cost platforms). Regulated by SEBI.

Depositories

Institutions that hold securities in dematerialized form and facilitate electronic settlement of trades. India has two: National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

Depository Participants (DPs) like banks, brokers act as intermediaries between depositories and investors.

Circuit Breakers & Price Bands

Circuit Breakers: Price bands or limits set by stock exchanges to curb excessive volatility and panic selling/buying. If an index (e.g., Sensex, Nifty) or an individual stock hits a predefined limit, trading is temporarily halted or restricted. Market-wide circuit breakers are applied at 10%, 15%, and 20% movements.
Price Bands: Applicable to individual stocks, restricting their movement within a specific range (e.g., 2%, 5%, 10%, 20%) from the previous day's closing price. Not applicable to stocks in the derivatives segment or certain other categories.

Source: NSE India Website, BSE India Website, SEBI Website, NCERT Class 12 Business Studies

6.3.4. Capital Market Instruments

These are the financial products traded in the capital market.

Instrument	Type	Issuer	Key Feature	Risk Level (General)
Equity Shares	Equity	Companies	Ownership, Voting Rights, Variable Dividends	High
Preference Shares	Equity	Companies	Preferential Dividend (fixed), No Voting Rights	Moderate
G-Secs	Debt	Central/State Governments	Fixed Income, Sovereign Guarantee (Low Risk)	Very Low
Corporate Bonds	Debt	Companies	Fixed Income, Credit Risk based on company	Low to High
Debentures	Debt	Companies	Fixed Income, Can be secured/unsecured	Moderate to High
Mutual Funds	Pool	Asset Management Companies (AMCs)	Diversification, Professional Management, NAV	Varies by scheme
ETFs	Pool	AMCs	Index Tracking, Traded on Exchange, Low Cost	Varies by ETF
REITs/InvITs	Pool	Trusts	Income from Real Estate/Infrastructure, Tradable	Moderate

Source: Ramesh Singh - Indian Economy, RBI website for G-Secs, AMFI India website

6.3.5. Derivatives Market

Financial instruments whose value is derived from the value of an underlying asset (e.g., stocks, bonds, commodities, currencies, market indices).

Core Concepts

Futures:: A standardized contract to buy or sell an underlying asset at a predetermined price on a specified future date. Both buyer and seller are obligated to fulfill the contract.
Options:: A contract giving the buyer (holder) the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a specified price (strike price) on or before a certain date (expiration date). The seller (writer) of the option is obligated to perform if the buyer exercises the right.
Swaps:: A contract between two parties to exchange sequences of cash flows for a set period. Examples include interest rate swaps and currency swaps.

Uses of Derivatives

Hedging: To reduce or manage financial risks arising from price fluctuations. Example: An exporter expecting dollar payments can sell dollar futures to lock in an exchange rate.
Speculation: To bet on the future direction of prices to make a profit. Involves high risk.
Arbitrage: To profit from temporary price differences of the same asset in different markets, involving simultaneous buy and sell transactions for a risk-free profit.

Source: NSE India Website, John C. Hull - Options, Futures, and Other Derivatives

6.3.6. Alternative Investment Funds (AIFs)

AIFs are privately pooled investment vehicles that collect funds from sophisticated investors (Indian or foreign) for investing in accordance with a defined investment policy for the benefit of its investors. Regulated by SEBI (Alternative Investment Funds) Regulations, 2012.

Categories (as per SEBI)

Category I AIFs

Invest in start-ups, early-stage ventures, social ventures, SMEs, infrastructure, or other socially/economically desirable sectors. Benefit from certain government incentives.

Examples: Venture Capital Funds, SME Funds, Infrastructure Funds.

Category II AIFs

Do not undertake leverage or borrowing other than to meet day-to-day operational requirements. These are the most common AIFs.

Examples: Private Equity (PE) Funds, Debt Funds, Fund of Funds.

Category III AIFs

Employ diverse or complex trading strategies and may employ leverage, including through investment in listed or unlisted derivatives.

Examples: Hedge Funds, Long-Short Funds, PIPE Funds.

Role in Startup & Private Equity Funding

Category I and II AIFs are major sources of funding for startups and established private companies (PE funding). They provide risk capital, mentorship, and strategic guidance to investee companies.

REITs (Real Estate Investment Trusts) & InvITs (Infrastructure Investment Trusts)

Concept:: Investment vehicles similar to mutual funds that pool funds from investors to invest in income-generating real estate (REITs) or infrastructure projects (InvITs). Units are listed and traded on stock exchanges, providing liquidity. Mandated to distribute a significant portion (usually 90%) of their net distributable cash flows to unitholders.
Benefits:: Allows small investors to participate in large-scale real estate/infrastructure assets, provides regular income, diversification, professional management, transparency.
Regulation:: Regulated by SEBI (Real Estate Investment Trusts) Regulations, 2014 and SEBI (Infrastructure Investment Trusts) Regulations, 2014.
Current Affairs:: Growing popularity of REITs and InvITs in India, with several new listings and increased investor interest. Government push for infrastructure development boosts InvITs.

Source: SEBI (AIF) Regulations, 2012, SEBI (REITs) Regulations, 2014, SEBI (InvITs) Regulations, 2014

6.3.7. Securities and Exchange Board of India (SEBI)

SEBI is the statutory regulatory body for the securities and capital market in India.

Establishment & Powers

Established on April 12, 1988, as a non-statutory body. Given statutory powers on January 30, 1992, through the SEBI Act, 1992.
Headquartered in Mumbai.
Possesses quasi-legislative (drafts regulations), quasi-executive (conducts investigation and enforcement action), and quasi-judicial (passes rulings and orders) powers.

Functions (Preamble of SEBI Act)

Protecting the interests of investors in securities.
Promoting the development of the securities market.
Regulating the securities market.
Key functions include regulating stock exchanges, intermediaries (brokers, merchant bankers, AIFs, etc.), prohibiting fraudulent and unfair trade practices, promoting investor education and training.

Key Regulations & Current Affairs

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR):

Governs disclosures and obligations for listed companies, ensuring transparency and corporate governance.

SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations):

Prohibits trading in securities by insiders possessing unpublished price-sensitive information (UPSI). Current Affairs: SEBI has been actively strengthening these regulations, including frameworks for identifying and penalizing insider trading.

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Code):

Regulates mergers and acquisitions involving listed companies to ensure fair treatment of minority shareholders.

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR):

Governs public issues (IPOs, FPOs), rights issues, etc.

Recent SEBI Initiatives & Current Affairs:

Introduced the Social Stock Exchange (SSE) framework in 2022-23, allowing social enterprises to raise funds.
SEBI (Foreign Portfolio Investors) Regulations, 2019, have seen amendments for enhanced due diligence.
Business Responsibility and Sustainability Reporting (BRSR) Core framework introduced for ESG disclosures.

Investor Protection Fund (IPF)

Established by SEBI and administered by stock exchanges. Aims to compensate investors in case of default by a trading member (broker) up to a certain limit per investor per defaulter broker. Funded by contributions from stock exchanges, listing fees, interest on fines, etc.

Source: SEBI Act, 1992, SEBI Website, PIB releases related to SEBI decisions

6.3.8. Startup Funding Ecosystem

The ecosystem providing financial support to startups at various stages of their growth.

Sources of Funding

Angel Investors:: High net-worth individuals who invest their personal capital in early-stage startups in exchange for equity. Often provide mentorship.
Venture Capital (VC) Funds:: (Often registered as Category I AIFs) Pool money from investors to invest in startups and small businesses with high growth potential. Invest in exchange for equity, take board seats, and actively guide the startup. Typically invest in Series A, B, C rounds.
Private Equity (PE) Funds:: (Often registered as Category II AIFs) Invest in more mature, established private companies (or take public companies private). Focus on growth capital, buyouts, or restructuring.
Crowdfunding:: Raising small amounts of money from a large number of people, typically via the internet. Types: Donation-based, Reward-based, Equity-based, Debt-based (Peer-to-Peer Lending). SEBI has regulations for Equity Crowdfunding (for accredited investors) and P2P lending (regulated by RBI).
Debt Funding:: Raising capital through loans that need to be repaid with interest. Sources: Banks, NBFCs, Venture Debt Funds. Venture Debt: Specialized debt financing for venture-backed startups, often less dilutive than equity.

Current Affairs Focus

New SEBI Regulations: SEBI continuously updates AIF regulations, disclosure norms, and compliance requirements for startups considering IPOs. The regulatory framework for the Social Stock Exchange aims to help social enterprises, including non-profits, raise funds.
IPO Market Trends: Recent years saw a surge in tech IPOs, though market volatility has impacted subsequent trends. SEBI has also tightened IPO disclosure norms regarding pricing and use of proceeds.
Performance of Major Indices: Indices like Nifty and Sensex have shown volatility due to global geopolitical events, inflation concerns, and interest rate hikes but have also hit record highs.
Fintech Innovations: Growth of discount brokerage platforms (e.g., Zerodha, Upstox), Robo-advisory services, use of AI/ML for trading and risk management, UPI for IPO applications. Emergence of "finfluencers" and SEBI's efforts to regulate them.
Startup Funding Rounds: Trends show a "funding winter" or a slowdown in large funding rounds for startups globally and in India, with increased investor focus on profitability and sustainable business models. Government schemes like Startup India Seed Fund Scheme (SISFS) continue to support early-stage startups. Digital India GENESIS (Gen-next Support for Innovative Startups) launched by MeitY.

Source: Startup India Portal, Economic Survey, Newspapers, MeitY website

Prelims-ready Notes

Primary vs. Secondary Market Comparison

Feature	Primary Market	Secondary Market
What is traded?	New securities (first time issue)	Existing/previously issued securities
Parties Involved	Company & Investors	Investors & Investors (through exchanges)
Financing	Direct financing to companies	Indirect; enhances marketability of securities
Intermediary	Merchant Bankers, Underwriters	Brokers, Stock Exchanges, Depositories
Price Determination	By the company (with merchant bankers)	By demand and supply forces
Key Processes	IPO, FPO, Rights Issue, Private Placement	Trading, Clearing, Settlement
Also Known As	New Issues Market	Stock Market, Aftermarket
Key Benefit	Capital Formation for companies	Liquidity for investors, Price Discovery

Key Facts & Recent Developments

SEBI Establishment: Statutory body from Jan 30, 1992 (SEBI Act, 1992).
Depositories in India: NSDL, CDSL.
ASBA: Mandatory for IPOs.
Sensex: BSE, 30 scrips, Base 1978-79.
Nifty 50: NSE, 50 scrips, Base 1995.
Circuit Breakers: Halt trading during extreme volatility (10%, 15%, 20% index movement).
AIF Categories: Cat I (VC, Infra), Cat II (PE, Debt), Cat III (Hedge Funds).
T+1 Settlement: Implemented for all scrips by Jan 2023. T+0 settlement (beta version) launched in March 2024 for select scrips. (Recent Development)
Social Stock Exchange (SSE): Framework by SEBI for social enterprises to raise funds. (Recent Development)
Corporate Debt Market Development Fund (CDMDF): Launched in 2023 as a backstop facility for specified debt funds during market stress. (Recent Development)

Mains-ready Analytical Notes

Engine of Growth: Mobilizes domestic savings and foreign capital for investment, driving industrial and infrastructure growth. (Economic Survey often highlights this).
Efficiency in Allocation: Market-based mechanisms generally lead to more efficient allocation of capital compared to state-controlled systems.
Corporate Governance: Listing requirements and SEBI regulations (e.g., LODR) improve corporate governance standards.
Job Creation: Growth fueled by capital market investments leads to employment generation.
Infrastructure Development: InvITs and dedicated infrastructure funds channel capital into crucial infra projects.

Retail Participation: While increasing, still relatively low compared to developed economies, especially beyond urban centers. Financial literacy is a key challenge. (RBI Reports on Financial Inclusion)
Market Volatility & FPI Dependence: Indian markets are often influenced by global cues and FPI flows, leading to volatility. Debate: Balancing the benefits of FPIs (capital, expertise) with the risks (hot money).
Corporate Bond Market Depth: While growing, India's corporate bond market lacks the depth and liquidity of equity markets or G-Sec markets. Need: Measures to enhance secondary market liquidity, standardize issuance, and encourage wider participation. The Corporate Debt Market Development Fund (CDMDF) is a step in this direction.
Insider Trading & Market Manipulation: Despite SEBI's efforts, these remain concerns, eroding investor confidence. SEBI's response: Strengthening PIT regulations, enhancing surveillance.
Fintech Disruption & Regulation: Pros: Increased accessibility, lower costs (discount brokers), innovative products. Cons: Risks of data privacy, cybersecurity, mis-selling by unregulated "finfluencers," systemic risks from complex algorithms. SEBI is actively working on regulating finfluencers and algorithmic trading.
ESG Integration: Growing demand for Environment, Social, and Governance (ESG) compliant investments. SEBI's BRSR framework is a key step, but challenges remain in standardization and verification of ESG data.

Pre-1991 Era

Dominated by development financial institutions (DFIs), limited players, administered interest rates, BSE as the main exchange.

Post-1991 Reforms

Establishment of SEBI as a statutory regulator, entry of FIIs/FPIs, establishment of NSE, screen-based trading, dematerialization of securities, growth of mutual fund industry.

Continuity & Change

Continuity: The fundamental functions of capital mobilization and allocation remain. Changes: Shift from physical to electronic, increasing sophistication of instruments (derivatives, AIFs), greater regulatory oversight, focus on investor protection and corporate governance, rise of fintech.

Funding India's Growth Ambitions: Crucial for achieving $5 trillion economy target, funding infrastructure (National Infrastructure Pipeline), and supporting startups (Startup India).
Financialization of Savings: Shift from physical assets (gold, real estate) to financial assets, aided by schemes like Jan Dhan Yojana and demonetization.
Wealth Creation: Provides avenues for citizens to participate in India's growth story and create long-term wealth.
Global Integration: Indian markets are increasingly integrated with global markets, bringing both opportunities and risks.

LIC IPO (2022): India's largest IPO, significantly increased retail investor participation and demat accounts. (PIB, Newspapers)
Startup Funding Winter (2022-Present): A global phenomenon where venture capital funding for startups has slowed down, impacting Indian startups as well. Investors are now focusing more on profitability over "growth at all costs." (VCCEdge, Tracxn reports)
SEBI's T+1 Settlement Cycle: India became one of the first major markets to fully implement T+1 settlement (trade date + 1 day) by January 2023, enhancing market efficiency and reducing risk. In March 2024, SEBI launched a beta version of T+0 (same-day settlement) for a limited set of 25 scrips and a limited set of brokers. (SEBI Circulars, The Hindu Business Line)
Growth of AIFs: The AIF industry in India has seen commitments worth over ₹8.33 lakh crore by Q2 FY23, showcasing its growing role in funding various sectors. (SEBI Data)
Corporate Debt Market Development Fund (CDMDF): Operationalized in July 2023, with an initial corpus of ₹3,000 crore, to act as a backstop for corporate debt mutual funds during market stress. (PIB, SEBI)

UPSC Previous Year Questions (PYQs)

Prelims MCQs

1. With reference to the Indian economy, consider the following statements: (UPSC 2022)

If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.
If the Rupee is rapidly depreciating, RBI is likely to sell dollars in the market.
If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars.

Which of the statements given above are correct?

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (b)

1. Incorrect. If inflation is high, RBI sells G-Secs (Open Market Operations) to suck out liquidity.
2. Correct. Selling dollars increases dollar supply, potentially stemming Rupee depreciation.
3. Correct. Lower interest rates abroad might lead to capital inflows into India, appreciating the Rupee. RBI might buy dollars to prevent excessive appreciation and build forex reserves.

2. Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly? (UPSC 2019)

(a) Certificate of Deposit
(b) Commercial Paper
(c) Promissory Note
(d) Participatory Note

Answer: (d)

Participatory Notes (P-Notes) are derivative instruments issued by FPIs to overseas investors.

3. Consider the following statements regarding the Securities and Exchange Board of India (SEBI):

It is a statutory body.
One of its functions is to promote investor education.
It regulates commodity derivatives.

Which of the statements given above are correct?

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (d)

1. Correct, SEBI Act 1992.
2. Correct, protecting investor interest includes education.
3. Correct, after the Forward Markets Commission (FMC) was merged with SEBI in 2015.

4. What is/are the purpose/purposes of Government's 'Sovereign Gold Bond Scheme' and 'Gold Monetization Scheme'? (UPSC 2016)

To bring the idle gold lying with Indian households into the economy.
To promote FDI in the gold and jewellery sector.
To reduce India's dependence on gold imports.

Select the correct answer using the code given below.

(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (c)

Sovereign Gold Bonds are G-Secs denominated in grams of gold, a capital market instrument. The schemes aim to mobilize idle gold and reduce import dependence. Promoting FDI is not a direct objective.

Mains Questions (UPSC Type)

1. "The SEBI is a regulator of the capital market in India." In light of this statement, discuss the role and functions of SEBI in ensuring investor protection and market development. (UPSC 2017 Type - similar questions asked frequently)

Introduction: Briefly explain SEBI's establishment and mandate.
Role in Investor Protection: Detail measures like IPF, prohibition of insider trading, regulation of intermediaries, grievance redressal (SCORES), investor awareness programs.
Role in Market Development: Discuss promoting new instruments (REITs, InvITs, ETFs), modernizing market infrastructure (demat, electronic trading, T+1 settlement), simplifying IPO processes, developing corporate bond market, framework for AIFs, Social Stock Exchange.
Challenges faced by SEBI: Market manipulation, technological complexities (algo trading, cyber threats), ensuring compliance in a vast market, balancing regulation with innovation.
Conclusion: Summarize SEBI's critical role and suggest a way forward (e.g., strengthening surveillance, enhancing financial literacy).

2. What are Alternative Investment Funds (AIFs)? Discuss their significance in the Indian startup ecosystem and the regulatory challenges associated with them. (UPSC 2020 Type - focus on newer instruments)

Introduction: Define AIFs and their categories as per SEBI.
Significance for Startups: Explain how Category I and II AIFs (VC, PE funds) provide risk capital, mentorship, and facilitate growth for startups. Give examples of sectors benefiting.
Contribution to Innovation: How AIFs fuel innovation and job creation by backing new ventures.
Regulatory Challenges: Valuation of illiquid investments, transparency, risk management, taxation, balancing investor protection with fund flow.
Recent SEBI measures: Mention any recent circulars/guidelines by SEBI for AIFs.
Conclusion: Acknowledge the growing importance of AIFs and the need for an evolving regulatory framework.

3. Critically analyze the role of the primary market in capital formation in India. What measures has SEBI taken to streamline the Initial Public Offering (IPO) process? (UPSC 2021 Type - direct focus on primary market)

Introduction: Define primary market and its function in raising fresh capital.
Role in Capital Formation: How IPOs, FPOs, Rights Issues directly provide funds to companies for expansion, new projects, debt repayment, thus contributing to gross capital formation. Link to industrial growth.
Critical Analysis (Challenges/Limitations): Market volatility, over/underpricing, concentration in certain sectors, ensuring quality/investor protection.
SEBI's Measures to Streamline IPO Process: ASBA, stricter disclosure norms (DRHP/RHP), regulations for intermediaries, curbing manipulation, reduced listing timeline, focus on new-age tech.
Conclusion: Reiterate importance and SEBI's proactive role, suggest improvements.

Current Affairs and Recent Developments

Key recent developments have been integrated into the respective sections throughout this document. These include: SEBI's T+0 settlement (beta version) launch; operationalization of the Corporate Debt Market Development Fund (CDMDF); continued development of the Social Stock Exchange (SSE) framework; SEBI's enhanced focus on ESG disclosures (BRSR Core); regulatory actions for "finfluencers"; ongoing refinements in AIF regulations; and shifts in IPO market trends. These dynamic changes highlight the capital market's adaptive nature.

Source: SEBI Press Releases, PIB, The Hindu, Business Standard, Livemint, RBI Notifications