Structure of Financial Market in India
The financial market in India can be broadly divided into two main components, that is, the money market and the capital market. Wherein, the capital market is further divided into primary and secondary markets. Let’s understand more about the structure of the financial market in India.
Money Market
The money market acts as a marketplace for short-term borrowing and lending. At the wholesale level, it involves large-volume transactions between traders and institutions. At the retail level, the money market involves mutual funds bought by individual investors and accounts opened by bank customers.
The assets traded in the money market are risk-free and highly liquid. As the maturity period is less, the risk of volatility is low and the returns are low as well.
Common examples of instruments traded in the money market are treasury bills, commercial papers, certificates of deposits, bankers’ acceptance, etc.
Capital Market
As opposed to the money market, capital markets deal in long-term securities. The securities that have a maturity period of more than a year are traded in the capital market. Subsequently, the market trades in both debt as well as equity-oriented securities.
Participants of the capital market include Foreign Institutional Investors (FIIs), financial institutions, NRIs, individuals, and so on. The capital market is further divided into Primary Market and Secondary Market.
Let us learn about both the primary and secondary markets through the following points of differences between the two.
| Primary Market | Points of Differences | Secondary Market |
| New Issue Market (NIM) | Also known as | After Issue Market (AIM) |
| Origination, underwriting, and distribution | Functions | Buying or selling of securities between the investors without any involvement of the issuing company |
| Stocks are issued for the first time | Role / Importance | Stocks are traded once issued |
| Investment Banks | Intermediaries | Brokers |
| Directly by the companies to the investors | Sale of Securities | Bought and purchased amongst investors and traders |
| Price of Shares | Fixed at par value | Changes depending upon the supply and demand of shares |
| IPO (Initial Public Offering), bonus and right share issues, private placement, preferential allotment etc. | Examples | Stocks, bonds, derivatives, etc. |
