What is a Money Market?


Understanding the money markets helps you a lot

Commercial banks are the dominant players of Indian money markets

If you invest money in mutual funds and managing your investments by yourself, understanding the money markets is very important. If the main aim of investing in a mutual fund is to reach your financial goals, try to understand different kinds of mutual fund schemes that serve various purposes. Getting a deep understanding of money markets or stocks, or bonds is not necessary in such cases. But if you plan to manage your own investments, understanding the money markets helps you a lot. Let us check what the money market is in this post.

Money markets – A component of the financial markets

The money market is an important pillar of the financial system where financial instruments of short-term maturities and high liquidity are traded. It is a component of the financial market that usually consists of assets that deal in short-term lending and borrowing with maturities of one year or less than that. Most of the transactions of the money market are wholesale transactions that take place between companies and financial organizations.

An individual can gain access to the money markets through a money market fund like a mutual fund. He or she can choose short-term debt securities to invest their money as such funds allow investors to participate in a high-quality, diverse, and liquid portfolio better than individually invest. You can also consider buying commercial papers, certificates of deposits, or treasury bills to enter into this field.

Money market segments of India

The money market of India has two main segments to follow. They are an organized and unorganized money market.

  • Unorganized money market

Even if illegal, an unauthorized money market exists in India, which is an ancient market. This market mainly consists of money lenders and indigenous bankers.

  • Organized money market

The organized money market of the country regulates by the Reserve Bank of India and the Securities and Exchange Board of India. This market is a combination of the market of different instruments. The key players of this segment are central and state governments, mutual funds, commercial or cooperative banks, Discount and Finance House of India (DFHI), Insurance companies, non-banking financial companies, financial institutions, and the public sector undertakings.

The main parts of the organized Indian money market system are:

  • Treasury Bills
  • Notice money or call money
  • Certificate of deposits
  • Commercial bills
  • Commercial papers
  • Money market mutual funds
  • Repo and reverse repo money market

 

Understand the key features of money market of India

Understand different features of the Indian money market system if you plan to invest money in mutual funds. Your understanding of the money market will help you to become a wise investor. Following are the key features of Indian money markets:

  • The money market in the country is mainly focused on short-term assets or funds, termed near money.
  • All money market instruments deal only with assets of financial nature and a maturity period of one year or less than that one year.
  • The money market deals with assets that can readily convert into cash with less transaction cost and without much loss.
  • The transactions in this market usually take place through oral communication like mobile or phone. Immediate exchange of written communications or relevant documents is not necessarily in this case. Besides, it does not have any formal place for the trading purpose like a stock exchange.
  • You can see free transactions of brokers there in the money market.
  • Commercial banks are the dominant players of Indian money markets.

 

Indian money market functions

When compared with other financial instruments, money market instruments are liquid, and you can easily convert them into cash. Such instruments can address the short-term surplus fund requirements of the lenders or fund needs of borrowers. That means money market instruments are capable of fulfilling the short-term financial requirements of the economy.  Get an idea of the other key functions of the Indian money market system:

  • Balance the demand and supply stability of short-term funds.
  • This money market helps in the successful implementation of the monetary policy of the Reserve Bank of India.
  • It can maintain liquidity in the Indian economy.
  • It can fulfill the short-term fund requirements of the governments.

 

The money market is a familiar word for those who invest in mutual funds. It is a market where lending and borrowing of short-term funds taking place. The financial instruments of this market have a maturity period that varies from one day to one year. And this money market deals with high-volume transactions that are large in amount. Providing a parking place to utilize short-term surplus funds is the main aim of Indian money markets. Investors can find a wide range of products in the money market, but they cannot earn huge returns by investing in them.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh