Introduction

In this article you will get information about "Difference Between Money Market And Capital Market".A Financial Market is a place where both buyers and sellers trade in financial assets such as stocks, bonds, currencies and commodities. The main objective of a financial market is to facilitate price discovery, provide liquidity to financial assets, increase capital, reduce the cost of transaction and transfer risk and liquidity. 

There are two main segments of financial market are ; (a) Capital Market (b) Money Market. Money market is a market for short term funds meant for use for a period of upto one year. Whereas, Capital Market is a market for medium and long term funds. 

What is Money Market? 

The money market refers to trading in very short term debt investments. It is a main component of the economy that provides short term funds meant fund for use for a period of upto one year. Transactions of money market include lending and borrowing of cash for a short period of time and also sale and purchase of securities having one year term or which gets redeemed within one year period. Money market has not fixed geographical location. Common instruments of money market are Call money, Treasury bill, Commercial bill etc. 

What is Capital Market? 

A capital market is a financial market in which long- term debt or securities are bought and sold. The capital market provides a platform for corporation to raise funds from investors and the public, it facilitate economic growth and development. It includes all the organisations, institutions and instruments that provide long term and medium term funds. It does not include the instruments or institutions which provide finance for short period (upto one year). The common instruments used in capital market are shares, debentures, bonds, mutual funds, public deposits, etc. 

Difference between Money Market and Capital Market 




1. Participants:-

The participants in capital market are financial institutions, banks, public and private companies, foreign investors and ordinary retail investors from public. Whereas the participants of money market are financial institutions, banks, public and private companies, but foreign and ordinary retail investors do not participate in money market. 

2. Time duration :-

The money market deals with short term securities having maximum tenure of 1 year. Whereas capital market deals in medium and long term securities. 

3. Risk :-

The instruments of money market are safe or less risky due to short duration. The instruments of capital market riskier in respect to returns as well as respect to principal repayment as issuing company may fail. 

4. Liquidity :-

Money market securities enjoy higher degree of liquidity as it is easier to convert to cash. Capital market securities are less liquid as it is harder to convert to cash. 

5. Instruments :-

The common instruments of money market are treasury bills, trade bills, commercial paper, commercial bills etc. The common instruments of capital market are equity shares, debentures, preference shares, bonds and other innovative securities. 


6. Expected return :-

The expected return of money market is less due to short duration. Whereas the expected return is higher in capital market as along with regular dividend or interest there are chances of capital gain. 

Frequently Asked Questions 

Question 1. What is money market and capital market? 

The money market refers to trading in short term debt. Transactions of money market includes lending and borrowing of cash for a short period of time. A capital market is a financial market where long term debt or securities are bought and sold. 

Question 2. What are some examples of money market instruments? 

The money market is composed of different types of securities including short term treasuries, commercial paper, commercial bills etc. 

Question 3. What are the two types of capital market? 

Capital market classified into two types that is primary market and secondary market.

Question 4. Who controls the financial market in India? 

Securities And Exchange Board Of India (SEBI) monitors and controls the financial market in India. Its main aim is to protect the interests of the investors, formulating rules and regulations.