Money Market: The money market provides investment avenues of short term tenor. Money market transactions are generally used for funding the transactions in other markets including Government securities market and meeting short term liquidity mismatches.
Money market for short-term and long-term funds with maturity ranging from over night to one year.Indian Money market consists of unorganized sector,money lenders,indigenous bankers, NBFCs,RBI,PSBs,LIC, finance corporatio,IDBI and co-operative sector.
Short-term markets are called Money markets
Long-term markets are called Fixed income markets
The instruments of money market in India are
Minimum amount of CD should be 1 lakh
Period: Banks can issue CDs for maturities from 7 days to one a year whereas eligible FIs can issue for maturities 1 year to 3 years.
Corporate, primary dealers (PDs) and the all-India financial institutions (FIs) that have been permitted to raise short-term resources under the umbrella limit fixed by the Reserve Bank of India are eligible to issue CP.
By definition, money market is for a maximum tenor of up to one year. Within the one year, depending upon the tenors, money market is classified into:
i. Overnight market or Call money - The tenor of transactions is one working day.
ii. Notice money market – The tenor of the transactions is from 2 days to 14 days.
Iii. Term money market – The tenor of the transactions is from 15 days to one year.
Money market for short-term and long-term funds with maturity ranging from over night to one year.Indian Money market consists of unorganized sector,money lenders,indigenous bankers, NBFCs,RBI,PSBs,LIC, finance corporatio,IDBI and co-operative sector.
Short-term markets are called Money markets
Long-term markets are called Fixed income markets
The instruments of money market in India are
- call money/Notice Money market
- Repo/Reverse repo
- Inter-Corporate Deposits
- Commercial Paper
- Certificate of deposits
- T-bills
Call money: All banks in India participate in the call money.this is very short term money market where the maturity not more than 14 days
Inter corporate deposits(ICDs): The minimum period of ICDs is 7 days which can be extended to one year
Certificate of Deposit (CD): Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialized form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period.
Minimum amount of CD should be 1 lakh
Period: Banks can issue CDs for maturities from 7 days to one a year whereas eligible FIs can issue for maturities 1 year to 3 years.
Commercial Paper (CP):Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. Introduced in 1990
Corporate, primary dealers (PDs) and the all-India financial institutions (FIs) that have been permitted to raise short-term resources under the umbrella limit fixed by the Reserve Bank of India are eligible to issue CP.
Scheduling bank alone can act as issuing and paying agent for CP
Period: CP can be issued for maturities between a minimum of 7 days and a maximum up to one year from the date of issue.
The total amount of CP proposed to be issued should be raised within a period of two weeks from the date on which the issuer opens the issue for subscription
CP may be issued on a single date or in parts on different dates provided that in the latter case, each CP shall have the same maturity date. Further, every issue of CP, including renewal, shall be treated as a fresh issue
Individuals, banking companies, other corporate bodies (registered or incorporated in India) and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) etc. can invest in CPs. However, investment by FIIs would be within the limits set for them by Securities and Exchange Board of India (SEBI) from time-to-time.
CP will be issued at a discount to face value as may be determined by the issuer.
A corporate would be eligible to issue CP provided –
a. the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore
b. company has been sanctioned working capital limit by bank/s or all-India financial institution/s; and
c. the borrowal account of the company is classified as a Standard Asset by the financing bank/s/ institution/s.
The total amount of CP proposed to be issued should be raised within a period of two weeks from the date on which the issuer opens the issue for subscription
CP may be issued on a single date or in parts on different dates provided that in the latter case, each CP shall have the same maturity date. Further, every issue of CP, including renewal, shall be treated as a fresh issue
Individuals, banking companies, other corporate bodies (registered or incorporated in India) and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) etc. can invest in CPs. However, investment by FIIs would be within the limits set for them by Securities and Exchange Board of India (SEBI) from time-to-time.
CP will be issued at a discount to face value as may be determined by the issuer.
Treasury Bills (T-bills):Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest.
