What Are the Different Money Market Instruments?

There are different parts of a financial market in India and one of them is known as the money market. These are financial instruments that are traded that are high liquidity and are very short term maturities. Yes, it is a completely safe investment and these do meet the short term requirement goals of the investment. So, what are these money market instruments?

Treasury bills

One of the most common market instruments that are enabled today by the Government is treasury bills. This enables investors to place their short term surplus money with a reduced market risk. The key advantage with treasury bills is that they are auctioned by the RBI regularly and each time they are given or issued with a discount that is present of the face value and upon maturity only is the face value paid to the holder. While the rate of discount and the issuing price are decided during the auction, they are available at a base price of Rs. 25,000/- and in multiples of Rs. 25,000/- there on.

Repurchase agreements

This is a short term money market instrument that is released by government securities and this is in a quick manner at all times. This is normally sold in a 24 hour period and the seller agrees to repurchase it in the future and that is when it is a repo; whereas it is a reverse repurchase agreement for the buyer. Even though the asset is sold at the start, the commitment to buy it makes it a temporary sale even though it officially is a permanent sale.

Commercial papers

This is an unsecured market instrument that is many times drawn closely towards a mutual fund investment. It is a short term loan that is used for financing accounts in their inventories; this is usually sold as a discount and is impacted by the present market interest rates. The maturities that are linked with a commercial paper are usually at a maximum of 9 months. In most cases, these investments are sold within 45-60 days. It is a safe investment and the growth of the investment can be seen and predicted in the short term. It is also worthy to note that only corporations with high ratings of credit release these.

Certificates of deposit

This is a negotiable money market instrument that is issued by banks and do not have the maturity that is not less than 7 days and goes to a maximum of a year. However, most financial institutions do allow these to be issued for a period between a year and to 3 years. They are almost like bank deposits by they are negotiable and are known to have a higher return as compared to a bank term. This can be released by all scheduled banks and can be given to individuals, trusts, funds and associations. These are issued with a discount rate and can be freely decided by the investor and the issuer.

Bankers Acceptance

This is a short term debt market instrument that is given by a commercial bank and these are seen as a commercial transaction. These are used or traded at a discounted rate from the secondary market face value that is provided and this works towards the benefit of the investor as it does not have to wait till maturity. This is a strong product in the international trade section of investments and has plenty of takers.

If you are looking at the short term end of an investment, any of these market instruments would be a smart idea. Look at the kind of investment that would suit you best and compare the different instruments before purchase.

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