There is hardly any movement of funds between Indian Money Market and foreign markets. Owing to the low returns, investors may prefer parking their money for short term in such funds. Central Banks everywhere exercise varying degrees of control over institutions of the money market. Low risks are just a little safe bump up from a regular savings account - with slightly higher interest earnings a … s the risk of investments are tend have a higher grade of securities and the fees if do apply very low. Any excess earnings that get generated by the way of interest received on the portfolio holdings are distributed to the investors in the form of payments.
There are three types of treasury bills in India—91 days, 182 days and 364 days. Investors can take reassurance in knowing that since money market funds were introduced in 1983, only once has a fund declined in value. Call and Notice Money: There is the call money market in which funds are borrowed and lent for one day. It is now one of the disciplined sectors of the money market. These are instruments that are discounted by the bill market.
The eventual integration of the organised and unorganised sectors will make the money market sensitive and responsive to the monetary policy. Treasury Bills or T-Bills in India are short term borrowing instruments issued by the Government of India that do not pay any interest but are available at a discount from their face value at the time of issue. The commercial banks and mutual funds are the main investors of commercial papers. Their lending policies are often harsh if we compare it with the lending policies of unorganised component of the market. Commercial Banks: Commercial banks also deal in short-term loans which they lend to business and trade. This liquidity, combined with a higher return on principal than an investor would receive from a savings account, make money market securities an excellent place for investors to relegate the cash portion of their diversified portfolios.
Easy flow of foreign funds: Since 1991 foreign funds is easily flowing into India. Money market accounts appeal to investors and savers because they can shop around to find banks that pay higher interest rates, and banks will often offer higher rates for larger balances. By using the word market we do not mean a physically located place, where buyers and sellers meet face to face in close proximity. Equilibrium between Demand and Supply of Funds: The money market brings equilibrium between the demand and supply of loanable funds. These are the buyers and sellers of short-term funds.
Repurchase agreements, on the other hand, are sold off by sellers, held back with a promise to purchase them back at a certain price and that too would happen on a specific date. In India, the treasury bills are issued by the Government of India at a discount generally between 91 days and 364 days. These characteristics give money market instruments their characteristic of being low risk. If you have money that you need to park for a short period but don't want to put in the bank, a money market fund might be a good place to invest it. But by issuing treasury bills, the Central Government raises funds almost uninterruptedly. Hybrid instruments have each the optionof equity and debenture.
Examples of money market mutual funds available in India include Aditya Birla Sun Life Floating Rate Fund by — Short Term Plan and Axis Liquid Fund by. Still then, this sector occupies an important place. Although money markets are not confined to locations, they are very often refereed to in relation to prominent places for identification for eg : London money market, new York Money Market, Bombay Money Market and so on. Along-with discount houses, there are bill brokers in the money market who act as intermediaries between borrowers and lenders by discounting bills of exchange at a nominal commission. The situation occurs when the of a money market fund fails to exceed its operating expenses or investment losses if any. Working of the Money Market: The money market consisting of commercial banks, discount houses, bill brokers, acceptance houses, non-bank financial houses and the central bank operates through the bills, securities, treasury bills, government securities and call loans of various types. It was in 1989 that the certificate of deposit was first brought into the Indian money market.
Limited availability of credit instruments: TheIndian Money Market does not have adequate short term creditinstruments. Video of the Day Safety Money market securities are the safest investments available, with credit ratings that surpass almost all other investment grade debt instruments. The primary purpose of a money market fund is to provide investors a safe medium through which they can invest in easily accessible, secure, and highly liquid cash-equivalent debt-based assets using smaller investment amounts. Both money market and capital markets deal in various types of instruments. Promissory notes and bills of exchange are known as trade bills. Money market securities provide investors with a safe means of preserving capital, though this safety comes at the expense of the higher yields attainable through riskier investments. The average amount of time that companies borrow money in a money market is about thirteen months or lower A negotiable instrument has the following characteristics.
For investors looking to put their money into money market instruments, there are a few options. The drawee accepts the bill and becomes liable to make payment on due date. The rest of the procedure is the same as for the internal bill of exchange. Different components of money market have been shown in a treelike diagram Fig. The money market supports the long term debt market by increasing the liquidity of securities.
While both these funds meet the reserve requirements, banks, however, mostly rely on the call money market. At present January 2009 the number of non- scheduled banks is 30. Theshort-term refers to a period of up to one year. Lack ofco-ordination among various segments of money market is alsoresponsible for diversified money rates of interest. Under the provisions, a money fund mainly invests in the top rated debt instruments, and they should have maturity period under 13 months. They can be issued by governments or private entities. Self Sufficiency of Banks: Commercial banks operating in developed money markets have ample opportunities to invest and generate further income such that their self sufficiency improves in the long term.