3 Mins

What is money market and examples?

It is a financial market where short-term financial assets having liquidity of one year or less are traded on stock exchanges. The securities or trading bills are highly liquid. Also, these facilitate the participant’s short-term borrowing needs through trading bills. The participants in this financial market are usually banks, large institutional investors, and individual investors. There are a variety of instruments traded in the money market in both the stock exchanges, NSE and BSE. These include treasury bills, certificates of deposit, commercial paper, repurchase agreements, etc.

How does money market work?

Money Market Mutual Funds (MMMF) predominantly invest in high-quality short-term debt instruments, cash, and cash equivalents. They best suit investors who are risk-averse with an investment horizon of three months to one year. Though they do not guarantee returns, they offer a predictable return usually considered risk free return due to the high-quality

Can you lose your money in a money market?

In India Money market is subject to interest rate risk, default risk, credit risk, and reinvestment risk. The interest rate might go up, and the price or asset value of the underlying security may go down or vice versa. The issuers of these securities might default on the payments. The fund manager might invest in risky securities for a higher return and asset. Hence, MMMF is not entirely risk-free.

What is difference between money market and capital market?

Money Market and Capital Markets are different types of financial markets wherein money markets are used for short-term borrowing and lending while capital markets are used for long-term securities. The money markets are unorganized markets where banks, financial institutions, money dealers and brokers trade in financial instruments for a short period of time. Capital market is used for long-term assets which have a maturity of more than one year, no actual cash involved in trading

What is the purpose of a money market?

Money market maintains liquidity in the market. RBI uses money market instruments to control liquidity. It finances short term needs of the government and economy. Any business or organization can borrow money at short notice for a short term. Helps in utilizing surplus funds in the market for a short term to earn an additional return. It channelizes savings to investments. Assists in mobilizing funds from one sector to another with the utmost transparency Guides in devising monetary policies. The current money market conditions are the result of previous monetary policies. Hence it acts as a guide for devising new policies regarding short term money supply.

Should I put my money in a money market account?

Individuals who have surplus cash in their saving account or wish to invest in a fixed deposit. They need stable growth rates with a horizon of one year can consider money market mutual funds as an option to invest. The returns from these funds may not be guaranteed but is often predictable. The return is also higher than bank deposits, hence allowing an investor to make money from the surplus cash. Money market mutual funds do not suit all investors. There are certain things an investor has to consider before picking these funds to park the surplus money.

What is the best money market fund?

Best Money Market funds for 2020:

  • Aditya Birla Sun Life Money Manager Fund
  • HDFC Money Market Fund
  • Tata Money Market Fund
  • ICICI Prudential Money Market Fund
  • Franklin India Savings Fund
  • Nippon India Money Market Fund