| Definition |
Market for long-term securities like stocks and bonds with maturities greater than one year. |
Market for short-term debt instruments with maturities of one year or less. |
| Time Horizon |
Long-term financing. |
Short-term financing. |
| Instruments |
Shares, debentures, bonds, mutual funds, etc. |
Treasury bills, commercial papers, certificates of deposit, call money. |
| Risk Level |
Generally higher risk with higher returns. |
Lower risk with lower returns. |
| Return Potential |
Higher returns due to long-term investment and equity exposure. |
Lower returns due to short duration and low-risk instruments. |
| Liquidity |
Moderate liquidity; some instruments can be traded on stock exchanges. |
Highly liquid; instruments are quickly convertible to cash. |
| Regulators |
Regulated by SEBI, stock exchanges, and central banks. |
Primarily regulated by the central bank (e.g., RBI in India). |
| Participants |
Retail investors, institutions, companies, government. |
Banks, financial institutions, corporations, RBI. |
| Purpose |
To raise capital for long-term projects and investments. |
To manage short-term liquidity and working capital needs. |
| Market Subdivisions |
Primary market (IPOs) and secondary market (stock exchanges). |
Organized and unorganized money markets. |
| Volatility |
More volatile due to long-term speculation and economic factors. |
Less volatile due to short maturities and government backing. |
| Credit Risk |
Higher due to default risk in equity and long-term bonds. |
Lower due to short duration and involvement of reputed institutions. |
| Interest Rate Sensitivity |
Sensitive, especially for bonds. |
Highly sensitive as short-term rates are directly affected by monetary policy. |
| Examples of Markets |
BSE, NSE, bond markets. |
Call money market, repo market, interbank market. |
| Settlement Period |
Generally T+1 or T+2 (trade date plus 1 or 2 days). |
Often same-day settlement or overnight deals. |
| Role in Economy |
Supports long-term economic growth and capital formation. |
Ensures short-term liquidity and smooth monetary operations. |
| Collateral Requirement |
Generally not required for equity; required for bonds in some cases. |
Often requires high-quality collateral like government securities. |
| Market Depth |
Deeper with long-term instruments and high investor participation. |
Shallow compared to capital market but efficient for short-term needs. |
| Frequency of Trading |
Frequent in stock exchanges and bond markets. |
Daily operations for liquidity management. |
| Example |
Buying shares of Infosys or SBI bonds. |
RBI issuing 91-day T-bills or a company issuing commercial paper. |
Capital Market vs Money Market