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Difference between Money Market and Capital Market


Difference between Money Market and Capital Market

Money Market is the market where short-term funds are provided to fulfill the needs of the investors and borrowers. It is the important segment in the financial system which deals with close substitutes of money i.e more liquid and can be converted into money easily. Money Market deals with short-term funds up to 1 year.The money market is the main tool through which the central bank fixes interest rates in an economy. It is mainly a market for short-term debt requirements which have the low risk factor and high liquidity to convert into money. Most of the money market transactions take place on telephone, fax or Internet only.Money Market acts as a market for credit instruments such as promissory notes, bills of exchange, commercial paper, treasury bills, call money etc. The Reserve Bank of India (RBI) is known as the leader of the money market in India. The Money Market is usually dominated by the banks and financial institutions present in the country.The Indian money market is divided into two segments namely organized sector which is regulated by RBI and unorganized sector. The unorganized sector comprises of unregulated non-banking financial institutions, individual money lenders, etc.

Capital Market is the market where long-term and medium-term funds are provided to fulfill the needs of the capital requirements of the business enterprises. The financial assets which are traded in Capital Market usually have long or no maturity period.Capital market normally acts as a market for marketing and trading securities of the organizations to raise the capital from the public issue. The securities traded in the capital market are Equity shares, debentures, bonds, and preference shares etc. The capital market is usually dominated by stockbrokers, mutual funds, financial institutions, underwriters, and individual investors.The market in which securities are traded is called as Securities Market. It is divided into PRIMARY MARKET which deals with the fresh issue of securities and the other one is SECONDARY MARKET which deals with the sale of existing securities which is known as ‘Stock Market’ or ‘Stock Exchange’.



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