What is the difference between money market and capital market - Times of India (2024)

FAQs

What is the difference between money market and capital market - Times of India? ›

In the money markets, governments, banks, and others buy and sell short-term debt—and individual investors own bank accounts, certificates of deposit (CDs), money market accounts, money market funds, and similar assets. And in the capital markets, investors trade stocks, bonds, and other assets.

Money markets are made up of short-term investments carrying less risk, whereas capital markets are more geared toward the longer term and offer greater potential gains and losses.

Treasury bills, or T-bills, are the most marketable money market securities. Governments issue them to borrow money for a short period. T-bills are issued with maturities that range from 1 month to 1 year.

Capital markets consist of money market, bond market, mortgage markets, stock market, spot or cash markets, derivatives markets, foreign exchange and interbank markets.

Capital markets are markets in which money is lent for periods longer than a year, while money markets are markets in which money is lent for periods of less than a year.

Money markets include markets for such instruments as bank accounts, including term certificates of deposit; interbank loans (loans between banks); money market mutual funds; commercial paper; Treasury bills; and securities lending and repurchase agreements (repos).

Some examples of capital markets are NASDAQ, BSE, New York Stock Exchange, London Stock Exchange.

Money market funds can protect your assets during a recession, but only as a temporary fix and not for long-term growth. In times of economic uncertainty, money market funds offer liquidity for cash reserves that can help you build your portfolio.

Choosing your investment

Yields aren't the only consideration when choosing among T-bills, CDs and money-market funds. While all are considered exceptionally safe, CDs can't be liquidated early without triggering an early-withdrawal penalty.

Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners.

Which is safer money market or capital market? ›

The Money Market is less risky, as the instruments have a low default risk and a low interest rate risk, while the Capital Market is riskier, as the instruments have a high default risk and a high interest rate risk.

In India, the capital market comprises two major segments, namely the primary market and the secondary market. The primary market is where corporations issue new securities, such as stocks, bonds, and other financial instruments, to raise capital.

The money market refers to trading in very short-term debt investments. At the wholesale level, it involves large-volume trades between institutions and traders. At the retail level, it includes money market mutual funds bought by individual investors and money market accounts opened by bank customers.

Capital markets are financial markets that bring buyers and sellers together to trade stocks, bonds, currencies, and other financial assets. Capital markets include the stock market and the bond market. They help people with ideas become entrepreneurs and help small businesses grow into big companies.

- Invest according to your Investment Plan

Usually, money market funds are recommended to investors with an investment horizon of 90-365 days. These schemes can help you diversify your portfolio and help invest surplus cash while maintaining liquidity.

Capital is a much broader term that includes all aspects of a business that can be used to generate revenue and income, i.e., the company's people, investments, patents, trademarks, and other resources. Money is what's used to complete the purchase or sale of assets that the company employs to increase its value.

Similarities between the money market and capital market are as follows: Both are important components of the international finance market. Both markets permit investors to purchase debt securities. Businesses and governments depend on both the markets for raising money for operations.

Capital markets allow traders to buy and sell stocks and bonds, and enable businesses to raise financial capital to grow. Businesses also have reduced risk and expenses in acquiring financial capital because they have reliable markets where they can obtain funding.

As we have seen, these capital markets have primary and secondary markets that pose as a platform for buying and selling these securities. In these Primary Markets, Investment Banking plays the role of an underwriter and makes sure that the securities are sold smoothly.