Question

Most infrastructure systems are built with funds from the capital markets. What are these markets and how do they fund infrastructure?

Answer 1

Infrastructure system is a support system for the production of public goods. It is a facility that is needed for the functioning of society and enterprise. The basic components of infrastructure are telecommunication, sewage, water, electricity, trasport, flyovers, etc. Infrastructure system needs a huge capital for its development. Infrastructure system can be funded publicly or privately.

Infrastructure system are built with funds from the capital market. As investment in infrastructure tends to be less volatile, thus many investors seeks this as a good opportunity for investment. Capital market is a market where capital is raised through shares, debenture, bonds and long-term instruments and are generally tradeable on the secondary market. The investors can be retail or institutional investors.

• Reatil Investors: Retail investors are individuals and businesses seeking investments in infrastructure projects as it is less volatile in nature and they have capital to invest.
• Institutional investors: Institutional investors include commercial banks, mutual fund companies, pension fund, insurance companies, etc. which invest their pool of funds in the infrastructure projects though shares or bonds issued for this purpose.