Features and Functions of the Money Market in India

Features and Functions of the Money Market in India

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Money Market is a part of the Indian financial market where short-term loans and borrowings take place. Money market instruments mature anywhere from a single day to a year. This market is governed by SEBI (the Securities and Exchange Board of India) and RBI (the Reserve Bank of India) in India. Because of the nature of this market, transactions occur in large quantities and in high volumes. As a result, we can assert that a small number of large players dominate the market as a whole.

Goals of the Indian money market - The primary goals of the Indian money market are as follows:

1. Create a parking area so that short-term surplus funds can be used.

2. Provide space to compensate for short-term deficits.

3. To make it possible for the Central Bank to influence and control economy-wide liquidity through market intervention.

4. Provide users of short-term funds with reasonable access to meet their needs quickly, effectively, and reasonably.

The important characteristics of India's money market are as follows:

Goals of the Indian money market - The primary goals of the Indian money market are as follows:

1. The money market is only for assets or short-term funds, also known as "near money."

2. The money market's instruments only deal with financial assets of a financial nature. Additionally, these instruments can mature within a year.

3. It deals in assets that easily turn into cash without much loss and at a low cost per transaction.

4. For the most part, exchanges happen through oral correspondence (for eg. mobile phone). After that, written communications and relevant documents are exchanged.

5. Broker-free transactions take place despite the absence of a formal trading venue (similar to a stock exchange).

6. The Central Bank, Commercial Banks, Non-Banking Financial Institutions, Discount Houses, and Acceptance House are the components of a money market. This market is dominated by commercial banks.

Functions of Indian money markets - When compared to other financial instruments, this market's instruments are liquid. These instruments can be easily converted into cash. As a result, they are able to meet both the borrowers' and lenders' short-term fund requirements for surplus funds. The primary purpose of this kind of market instrument is to meet the economy's short-term financial needs. The following are additional functions:

1. It helps the RBI effectively implement its monetary policy.

2. Regarding short-term funds, this market aids in maintaining equilibrium between demand and supply.

3. Additionally, it meets the government's requirement for a short-term fund.

4. It contributes to the economy's liquidity maintenance.

The fact that retail investors have very little opportunity to directly participate in the money market is an important factor to keep in mind when investing in it. Recently, the NSE began providing retail investors with money market instruments. Retail investors, on the other hand, are out of reach because of the trade's large ticket size and lack of liquidity. In any case, nothing is there to stress a lot of on this front. Money market mutual funds allow Indian retail investors to passively invest in any of these instruments.