| S No. |
Basis |
Money Market |
Capital Market |
| 1 |
Meaning |
It is a component of the financial market where short-term borrowing and lending takes place. |
It is a component of the financial market where long-term borrowing and lending takes place. |
| 2 |
Participants |
Participation in the money market is, by and large undertaken by institutional participants such as the RBI, banks, financial institutions, and finance companies. |
The participants in the capital market are financial institutions, banks, corporate entities, foreign investors, and ordinary retail investors from members of the public. |
| 3 |
Instruments |
The main instruments traded in the money market are short-term debt instruments such as T-bills, trade bill reports, commercial paper, and certificates of deposit. |
The main instruments traded in the capital market are equity shares, debentures, bonds, preference shares, etc. |
| 4 |
Duration |
Money market instruments have a maximum tenure of one year and may even be issued for a single day. |
The capital market deals in medium and long-term securities such as equity shares and debentures. |
| 5 |
Liquidity |
Money market instruments, on the other hand, enjoy a higher degree of liquidity as there is a formal arrangement for this. The Discount Finance House of India (DFHI) has been established with the specific objective of providing a ready market for money market instruments. |
Capital market securities are considered liquid investments because they are marketable on the stock exchanges. However, a share may not be actively traded, i.e. it may not easily find a buyer. |
| 6 |
Safety |
The money market is generally much safer, with a minimum risk of default. This is due to the shorter duration of investing and also to the financial soundness of the issuers, which primarily are the government, banks, and highly rated companies. |
Capital market instruments are riskier both with respect to returns and principal repayment. Issuing companies may fail to perform as per projections, and promoters may defraud investors. |
| 7 |
Expected return |
Investor returns on money market investments are typically lower than those on capital markets. |
Investor returns on capital market investments are typically higher than those on money market investments. |
| 8 |
Investment Outlay |
Does not demand a significant financial investment. |
Does not demand a significant financial investment. |
| 9 |
Institutions |
Participants in the market are central banks, commercial banks, acceptance houses, non-bank financial institutions, bill brokers, etc. |
Stock exchanges, commercial banks, non-bank institutions, financial intermediaries, etc., are the participants in the market. |
| 10 |
Risk |
Risk factor is very low because the maturity period of the instruments is less than one year |
Risk is higher as compared to the money market as instruments have along maturity period. |
