The money market is an important aspect of India’s financial system since it enables the government and private firms to get short-term loans. The money market is another option for lenders to generate money with their excess funds. This allows them to profit from their money. The money market buys and sells a wide variety of currencies, including treasury bills, business papers, CDs, bills of exchange, promissory notes, and many others.(Is not included) Continue reading to become an expert on features of money market and learn everything you should know about it.
Popular short-term assets in the money market include call money between banks, short-notice deposits, commercial bills, CDs, commercial paper, and Treasury Bills with periods ranging from 91 to 364 days. The money market utilizes these things. They have maturities ranging from extremely young to very old. Explore the disadvantages of money market issue further with this informative article.
Features of Money Market
We can divide the financial markets into two categories. Money firms can obtain funds for long-term aims (usually more than a year) from the “capital markets,” which consist of equities and bonds. To finance a purchase, a corporation may decide to issue bonds with a ten-year maturity date. To learn more, take a look at these features of money market.
Regulated by Rb
The Reserve Bank of India is responsible for monitoring and managing India’s money market. The unorganized sector is not under RB’s authority, but it is the only entity with the ability to influence the organized sector. However, because the organized sector is so much larger, the RB’s regulatory measures may have a significant impact on how the entire market operates.
Banker’s Acceptance
An individual or a corporation may issue a “Banker’s Acceptance,” which is a form of money order. The person who issued the instrument has agreed to pay the user the sum printed on it by a specific date. Thirty to eighty days elapsed before the instrument was issued. The instrument is more secure because a corporate bank guarantees the payment.
Repurchase Agreements
Repurchase agreements, repos, or buybacks are formal agreements between two parties in which one sells a security to the other with the intent to repurchase it from the buyer later. Some people also actively call it a sell-buy transaction.
The buyer chose to pay a specific interest rate on the security. This interest rate is added to the purchase price when the seller buys the security at the agreed-upon time and quantity. The repo rate refers to the interest rate that a buyer pays a seller in exchange for agreeing to acquire a property. Repo sales are an excellent option for sellers in need of cash immediately since they allow them to easily sell their shares and obtain the funds they require. It is conceivable for the buyer to receive a good return on their investment.
High Liquidity
Because these funds mature in one year, they are relatively easy to obtain. Another benefit of these funds is that they can provide investors with consistent income in a short period of time. It is simple to trade money market instruments in a variety of currencies, maturities, debt arrangements, and credit concerns. This makes them an excellent choice for firms seeking short-term loans or investments.
Commercial Papers
These notes are sometimes referred to as commercial papers (CP). Big enterprises and firms use promissory notes to raise funds for short-term purposes. Because of their good credit, these businesses cannot lose their trade papers. Another factor that protects the financial tool is how trustworthy the organization is.
Multiple Instruments
Money markets, unlike capital markets, use a variety of instruments to conduct transactions. They’re not all the same. They differ in several respects, including currencies, maturity periods, debt arrangements, and credit concerns. As a result, money market securities are regarded as the greatest strategy to diversify your risk.
Treasury Bills (t-bills)
Treasury bills, or T-Bills, are a means for the Indian government to raise funds. The Reserve Bank of India issues them. They feature short terms and can only be paid off within a year at most. There are now three alternative terms available for newly issued T-Bills. Here are the deadlines for finishing: Treasury bills are due in 91 days, 82 days, or one year. T-bills issue at a lower value than their face value. When the time is up, they will receive their money back up to its face value. The rate of return on an investment is the difference between its purchase price and its current value. Because the Indian government supports them, these are the finest ways to earn a consistent income in a short period of time.
Fixed Returns
Money market instruments are sold below their face value, ensuring buyers know their exact maturity proceeds. This is how consumers can get the assistance they need to select an investing tool that is within their budget and investment time frame.
Wholesale Market
Money markets were required to facilitate the transmission and receipt of large orders. Because of this, small investors with sufficient funds can trade directly in money markets. People who want to trade in the money market, on the other hand, must invest their money in debt mutual funds that do so.
Key Money Market Participants
Money markets do not allow individual purchasers to participate because they only deal in huge orders. This attracts institutional investors, such as banks and dealers, who wish to borrow or lend money for a limited time.
Certificates of Deposits (cd)
Banks and other lending institutions issue CDs, which are a sort of financial asset. The interest rate depends on the amount spent. The key difference between fixed deposits (FD) and certificates of deposit (CD) lies in their maximum deposit limits. The first one is provided in exchange for a large sum of money, such as one lakh or multiples of one lakh.
Companies are more likely to use CDs than individuals looking to earn interest on their extra income for a limited time. Bank certificates of deposit typically have periods ranging from seven days to a year. Other banks and credit unions may also sell CDs with terms of one to three years.
Secure Investment
Many individuals believe that these financial products are among the safest methods to invest money right now. In money market instruments, you rarely lose your initial investment due to high issuer credit ratings and fixed returns.
Physical Trading
Because money markets operate mostly over the counter, you cannot trade these funds on the internet. It applies all throughout the world. Money market investments are only feasible through in-person transactions or authorized agents due to their real-life nature. Following that, the person who purchased the money market product receives a legitimate certificate. The features of the money market include high liquidity and short-term borrowing and lending instruments.
FAQ
Who should Invest in Money Market Instruments?
If investors wish to lock in their money for a set period of time and earn a fixed rate of return, the money market instruments we discussed previously could be a smart option.
How are Money Market Instruments Different from Equity Securities?
Money market instrument owners are creditors, not shareholders. On the other hand, equity refers to a stake in the holding company. Corporate bondholders are considered creditors of the corporation, whereas stockholders are considered partial owners of the company.
What are the Pro and Cons about Investing in Money Market?
Other than in true crises, it does nothing else. The real interest rate falls as taxes and inflation reduce the value of the gain. This makes it the wicked twin.
Final Remarks
There are various aspects to this business, such as call money, acceptance and billing, and others. Every market is unique, that much is apparent. Commercial banks, acceptance houses, and non-banking financial companies (NBFCs) comprise the money market. When performing various business tasks, keep in mind that features of money market plays an important role in the overall process.
