Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets. In recent years, complex financial products, such as derivatives, have proliferated in developed countries. These products have become highly popular with banks and financial institutions as they allow them to hedge their risks and manage their regulatory and economic capital more efficiently. This book explains and critically examines the various aspects of Indian capital market and traditional and innovative financial instruments associated with it. It is designed to help a cross-section of readers, particularly teachers and students of economics, commerce and management, to understand in a non-technical language, the functioning of capital market in India. Maturity and sophistication of a financial system depends upon the prevalence of a variety of financial instruments to suit the varied investment requirements of heterogeneous investors so as to enable it to mobilize savings from as wide section of investing public. Since early 1990s, the Indian financial system has witnessed tremendous growth in financial product innovations. The emergence of the market for derivative products, most notably forwards, futures and options, can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks, by locking-in the asset prices. As instruments of risk management, derivatives generally do not influence the fluctuations in the underlying asset prices. However, by locking-in asset prices, derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-averse investors.