Distinguish Between Money Market and Capital Market | 12th HSC Secretarial Practice (S.P.) Chapter 11
The distinction between Money Market and Capital Market is a 5-star board exam favourite from Maharashtra State Board (MSBSHSE) 12th Standard HSC Secretarial Practice (S.P.) Chapter 11: Financial Market. Since Chapter 11 contains only two primary textbook distinctions, one of them is virtually guaranteed to appear in Question 4 (Distinguish Between) carrying 4 Marks. Below is the complete, textbook-accurate tabular solution strictly aligned with the latest Balbharati Textbook and official board marking scheme.
Board Exam Marking Scheme Tip: Each Distinguish Between question in Q.4 carries 4 Marks (1 mark per valid point). Always present your answer in a neat 3-column table including the Basis of Distinction. Write at least 5 to 6 clear points (starting with Meaning, Time Period, Instruments, and Regulator) to guarantee a full 4 out of 4 score!
Distinguish Between: Money Market and Capital Market
| Sr. No. | Basis of Distinction | Money Market | Capital Market |
|---|---|---|---|
| 1. | Meaning | Money Market is a component of the financial market where short-term funds (near-money assets) are borrowed and lent. | Capital Market is a component of the financial market where medium-term and long-term funds are borrowed and lent. |
| 2. | Time Period | In the money market, the instruments traded have a maturity period of one year or less than one year (from 1 day up to 364 days). | In the capital market, the instruments traded have a maturity period of more than one year (or have no fixed maturity, like equity shares). |
| 3. | Instruments | Treasury Bills (T-Bills), Commercial Papers (CP), Certificates of Deposit (CD), Call Money, and Commercial Bills are the instruments of the money market. | Equity Shares, Preference Shares, Debentures, Bonds, and Government Securities are the instruments of the capital market. |
| 4. | Purpose of Borrowing | Funds are borrowed in the money market to meet short-term working capital requirements or temporary liquidity shortages. | Funds are borrowed in the capital market to establish a new business, purchase fixed assets, or expand and diversify business operations (long-term fixed capital). |
| 5. | Institutions / Participants | Major participants include the Central Bank (RBI), Commercial Banks, Co-operative Banks, Mutual Funds, DFHI, and large corporate houses. | Major participants include Stock Exchanges, Commercial Banks, Non-Banking Financial Institutions, Financial Intermediaries, and retail investors. |
| 6. | Risk | In the money market, the financial risk factor is very low because the maturity period of the instruments is less than one year and issuers have high creditworthiness. | In the capital market, the risk is comparatively higher because the maturity period is long and market prices fluctuate widely. |
| 7. | Return on Investment | Return on investment in the money market is less as the instruments are highly liquid and safe. | Return on investment in the capital market is high as the investments are more risky and held for a longer duration. |
| 8. | Role in Economy | This market increases the liquidity of funds in the economy and helps in the effective implementation of monetary policy. | This market helps in the mobilization of long-term savings and promotes long-term capital formation in the economy. |
| 9. | Regulator | In India, the Money Market is regulated and controlled by the Reserve Bank of India (RBI). | In India, the Capital Market is regulated and controlled by the Securities and Exchange Board of India (SEBI). |
Quick Memory Trick to Remember All Points in the Exam
Memory Shortcut (Mnemonic — "MT-IP-RRR"):
Remember these 6 easiest points from the Balbharati textbook to write in under 4 minutes:
1. Meaning (Market for Short-term Funds vs. Market for Medium & Long-term Funds)
2. Time Period (One Year or Less vs. More Than One Year)
3. Instruments (T-Bills, CP, CD & Call Money vs. Shares, Debentures & Bonds)
4. Purpose of Borrowing (For Working Capital Needs vs. For Fixed Capital & Expansion)
5. Risk & Return (Low Risk & Less Return vs. Higher Risk & High Return)
6. Regulator (Regulated by RBI vs. Regulated by SEBI)
Key Concept Summary for Objective Questions (Q.1)
- Two Segments of Financial Market: The Indian Financial Market is broadly divided into two distinct segments based on maturity: (1) Money Market (Short-term) and (2) Capital Market (Long-term).
- Zero Coupon Bonds (T-Bills): Treasury Bills (T-Bills) are issued by the Reserve Bank of India on behalf of the Central Government for 91 days, 182 days, and 364 days; they are also called "Zero Coupon Bonds" because they are issued at a discount and redeemed at par.
- Call Money & Notice Money: Funds borrowed or lent for 1 day (overnight) are called Call Money, whereas funds borrowed or lent for 2 days to 14 days are called Notice Money.