A

Report

On

“STUDY ON MONEY MARKET INSTRUMENTS “

Prepared For
ENGLISH LAB

APPROVED BY
Mr. M. Mane

BY
Mr. Rohit Pandit
ENROLLMENT NO: 5NB12696

ICFAI NATIONAL COLLEGE

NASHIK

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 ACKNOWLEDGEMENT

On the completion of my project I would like to express my sincere thanks

to all those who have guided, advised, inspired and supported me during my

project report. I would like to thank our Principal Prof. Mr. S.S. Mokashi &

ICFAI NATIONAL COLEGE for giving me this opportunity.

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 OBJECTIVES

1. To know the meaning of financial market.

2. To know the meaning of money market

3. To study different types of money market instruments.

4. To know the meaning of treasury bills, commercial papers,

certificates of deposit etc.

5. To know the difference in the maturity period in different money

market instruments.

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 RESEARCH METHODOLOGY

Primary method: - Interview of Mr. Nikhil Bhosle, dealer in UTI securities.

Secondary method: - Internet and Reference book of financial

management.

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 CONTENT

1. Introduction

2. Types of instruments

3. Conclusion

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 INTRODUCTION

A financial market can be defined as the market in which financial assets are
credited or transferred. Financial assets represent a claim to the payment of a
sum of money sometimes in the future and /or periodic payment in the form
of interest or dividend.

The financial market is classified as money market and capital market. The
distinction between these two markets is based on the differences in the
period of maturity of the financial assets.

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 TYPES OF INSTRUMENTS

Call money markets, treasury bills markets, and markets of commercial

papers and certificates of deposits, money market mutual funds are some of
the examples of money market.

1. CALL MONEY MARKET

The call money loans are of very short term. Nature and maturity period of
these loans varies from 1 to 15 days. The money that is lent for 1 day in the
market is known as ‘call money’ and if it exceeds 1 day but less than 15 days
it is known as ‘notice money’. In this market any amount could be lent or
borrowed at convenient interest rates which are acceptable to both the
borrower and the lender. These loans are considered as highly liquid as they
are repayable on demand at the option of either the lender or borrower.

Purpose: - call money is borrowed from the market to meet various

requirements of commercial bills market and banks. The commercial bill
market borrows call money for short period to discount the commercial bills
and bank borrows it to meet the cash reserve ratio (CRR) requirements
which they should maintain with RBI.

Participants:- commercial banks, foreign banks, state district and urban

cooperative banks, financial institutions such as LIC, UTI, GIC, and its
subsidiaries, IDBI, NABARD, ICICI etc.

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2. COMMERCIAL PAPERS MARKET (CPs)

Commercial papers are short term un-secured promissory notes issued at a

discount to face value by well known companies that are financially strong
and carry a high credit rating. They are sold directly by the issuers to the
investors, or else placed by borrowers through agents like merchant banks
and security houses.

They are negotiable by endorsement and delivery like pro-notes and hence
are highly flexible instruments. They are issued in multiple of Rs. 5Lakh by
any single investor. The maturity varies from 15 days to 1 year. No prior
approval of RBI is needed for issue of CP. The issue expenses of CPs
include payment of stamp duty, broker’s fee, issuing and paying agents fee,
rating agencies fee, and other expenses like charges levied by the banks for
providing redemption facilities, etc. All the expenses related to issue of CPs
are borne by the issuers.
The stamp duty payable by the issuers on CP is based on the
period for which the CP is issued. They are certain concession in the stamp
duty applicable under Art. 12 of Indian Stamp Act, 1899 available to certain
investors as per central government notifications dated 16-05-1976.

3. CERTIFICATE OF DEPOSIT (CDs)

Based on the recommendations of vaghul committee the RBI formulated a

scheme in June 1989 for the issue of CDs by scheduled banks (excluding

RRBs).

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Certificate of deposit is issued by banks in the form of usance promissory
notes. These bank deposits are negotiable and are in marketable form
bearing specific face value and maturity. They are transferable form one
party to the other unlike term deposits. Due to their negotiable nature, these
are also known as Negotiable Certificates of Deposits.

CDs are available for subscription for individuals, corporations, companies,

trusts, funds, associations, etc. non residents Indians can also subscribe to
these instruments, but only on non-repatriable basis, which cannot be
endorsed to another NRI in the secondary market. CDs benefits both issuers
and investors. From the issuers (bank) point of view, CDs are issued
foreseeing the advantage over conventional deposits. The motives behind
issue of CDs are control over cost of funds and assured availability of funds
for specific period. The banks are constrained to define an interest rate
structure for their customers across the abroad.

CDs should be issued in denominations of Rs1lakh (1unit) of maturity value.

The minimum marketable lot for a CD, whether in physical or demat form
will be Rs1lakh and in multiples of Rs1lakh. Banks can issue CDs for a
minimum for period of 15 days to a maximum of one year, where as a
financial institution can issue it for a period of minimum one year and
maximum 3 years.

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4. MONEY MARKET MUTUAL FUNDS

MMF were setup to make available the benefits of investing in money

market to small investors. These are the mutual funds that invest primarily in
the money market instrument of very high quality and short maturities.

MMFs can be setup by commercial banks, RBI and public financial

institutions. These funds are governed by SEBI and it provides that only
individuals are allowed to in such funds. These schemes offered by these
funds can either be open ended or close ended.

The guidelines on funds specify a minimum lock in period of 15 days during

which the investor cannot redeem his investment. The guidelines also
specify that minimum size of MMFs to be50 corer and this not exceed 2%of
the total deposits in the case of banks.

5. TREASURY BILLS

Treasury bills are raised to meet the short term funds required by the
government of India. As the government’s revenue collections are bunched
and expenses are dispersed these bills enable it to manage the cash position
in a better way. T-bills also enable the RBI to perform open market
operations which indirectly regulate the money supply in the economy.
Investor prefers treasury bills because of high liquidity, assured returns, no
default risk, no capital depreciation and eligibility for statutory
requirements.

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Form: - T-bills are issued either in the form of a promissory note or credited
to investor’s SGL account. For every class a standardized format is used.
These are issued for a minimum amount of Rs.25000/- and in multiples of it.
The treasury bills are issued at discount and redeemed at par.

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 CONCLUSION

Money market deals with all transactions in short term instruments with a
period of maturity of one year or less. The most important function of the
well developed money market is to channel savings into short term
productive investments.

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