Financial markets are classified into two parts – money market and capital market . In this article, we will discuss the difference between money market and capital market in a simple and easy way and understand its various important aspects.

Note – If you want to understand the basics of share market from zero level then youshould start with Part 1 . If they have understood or just want to understand this, then continue.

वित्तीय बाज़ार एवं उसका वर्गीकरण

Financial market and its classification

There are two types of people in any economy , those who have surplus money, and those who need money so that they can create different types of resources, these two groups are classified as one. The market which helps in bringing on platforms and carrying out transactions between them is called financial market .

Financial market is mainly classified into two parts – 1. Money market 2. Capital market . This article is on money market.

वित्तीय बाज़ार

The part of the financial market where short-term financial needs are met is called the money market. Here the short term means a period of less than 1 year i.e. 365 days. In other words, if for a period of less than 1 year, the financial market that we have to resort to to meet the financial needs is called money market, such as treasury bills, commercial bills etc.

Thus that part of the financial market where long-term financial needs are met is called the capital market. Here long term means above 1 year. For example, shares, bonds, etc.

The above fact explains the basic difference between money market and capital market. Let us now understand the difference between these two in detail in this chart.

difference between money market and capital market

Money MarketCapital Market
Most of the transactions in the money market are done by the Reserve Bank of India, financial institutions (such as NABARD and SIDBI etc.) and finance companies. That is, there is not much scope for the individual to transact privately here.Most of the transactions in the capital market are financial institutions, banks, public or private limited companies, foreign investors and the general public. That is, here there is a scope for the person to transact privately.
The major instruments or instruments in which the money market is traded are short-term debt instruments such as Treasury bills, commercial bills, certificates of deposit etc.The long-term instruments or instruments in which transactions are done in the capital market are shares, bonds, debentures etc.
Transactions in the money market usually require large amounts of money. This is one of the reasons why large financial institutions are able to take advantage of it.It is not necessary to have a huge amount of money to invest in securities in the capital market. The value of units of security is generally less like Rs 10, Rs 100 etc.
The instruments or instruments are held in the money market for a maximum period of one year. Sometimes it is issued even for a day.In the capital market, there are deals in long term and medium term securities such as equities, shares and bonds etc.
From the point of view of security, the money market is more secure, the possibility of manipulation is minimal. The reason for this is that the investment period here is short and the financial position of the issuers is strong. Because the issuers themselves are the government, banks and high-ranking companies.From a security point of view, capital markets are risky. This involves the risk of both the return of the value of the instruments and the return on them. There is also a risk of losing investors’ money if the company issuing the instrument is unable to act as per the announced plan.
Money market in a way fulfills needs and not desires. That is, like the capital market, there is no scope for high returns in it. Apart from this, there is no expectation of getting anything from the company’s dividend.Investors get a much higher rate of return on the amount invested in the capital market as compared to the money market. If the securities are of longer duration, the earning potential on these increases further. Apart from this, there is also an expectation of getting something from the company’s dividend.
For better understanding, we can understand the money market in detail.For better understanding, we can understand Capital Market in detail.

Overall this is the difference between money market and capital market, hopefully you will understand. For better understanding read other related articles also, link is given below:

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Article Based on,
अर्थव्यवस्था – रमेश सिंह
ncert textbook, Etc.