Difference between capital market and money market:
Basis of Distinction | Capital Market | Money Market |
1) Meaning | The market dealing in long-term funds is known as the capital market. | The market dealing in short-term funds is known as the money market. |
2) Constituents | These include the new issue market, stock market, stock brokers and intermediaries. | These include the call money market, bill market and discounting market. |
3) Participants | Individual and institutional investors operate in the capital market. | Only institutional investors operate in the money market. |
4) Amount of funds | Capital market arranges large amounts of funds. | Money market arranges a comparatively small amount of funds. |
5) Instruments | The instruments in the capital market include shares, debentures bonds etc. | Trade bills, T-bills, certificates of deposits; commercial papers etc. are the instruments of the money market. |
Features of Money Market:
a) Market for short term: It is a market for short term funds. Call money, notice money, repos, term money, treasury bills, commercial bills, certificate of deposits, commercial papers are the instruments of money market.
b) Participants: It constitutes all organisations and institutions which deal with short term debts such as banks, RBI, mutual funds etc. Only the institutional investors operate in the money market. Individuals investors are not allowed to participate in money market.
c) No fixed geographical area: It has no fixed geographical location. Activities in the money market tend to concentrate in some centre, which serves a region or an area.
d) Risk and return: Investments in money market are safe as funds are invested in the instruments issued by commercial banks and highly rated companies. But the the yield on investments is comparatively lower as compared to capital market.
e) Liquidity: The instruments of money market have very high degree of liquidity. Investments can be liquidated as and when necessary.
