Commercial Papers

• A commercial paper is an unsecured, short-term debt instrument

issued by corporation, typically for meeting short term liabilities.
To give an example
• Say Future Group, the owner of a large retail store like Big Bazaar,
wishes to raise funds from the market to purchase its merchandise.
• If it were to go to a bank for a loan, then it would probably have to
pay around 15% interest on the loan.
• But from the open market it could perhaps get the loan at only 10%.
• Hence by resorting to an instrument like CP, the organization gains
5%
Real Life Example
• Jubilant Life Sciences raises Rs 90 crores through commercial papers
Certificate of deposits
• A certificate of deposit (CD) is a product offered by banks and credit
unions that provides an interest rate premium in exchange for the
customer agreeing to leave a lump-sum deposit untouched for a
predetermined period of time.
Real Life Example
Yes Bank raise Rs 3500 crores via CD .
Money Market
• Money market basically refers to a section of the financial market
where financial instruments with high liquidity and short-term
maturities are traded.
• Money market has become a component of the financial market for
buying and selling of securities of short-term maturities, of one year
or less, such as treasury bills and commercial papers.
Pros & Cons
• Pros
1. Great Place to Park Money
2. Liquidity Isn't Usually an Issue
• Cons
1. Expenses Can Take a Toll
2. Returns May Vary
3. Lost Opportunity
Capital Market
• Capital Market is a place where money is exchanged between people
who have excess of it, to those who are in deficit.
• Basically, it is the part of financial system which is concerned with
raising capital funds by dealing in Shares, Bonds, and other long-term
investments.
• The market where Investment instruments like bonds, equities and
mortgages are traded is known as the capital market.
The different types of financial instruments
that are traded in the capital markets are:
1. Equity instruments
2. Credit market instruments
3. Insurance instruments
4. Foreign exchange instruments
5. Hybrid instruments.
Pros & Cons
• Pros
• Securities like shares pay dividend income.
• There is greater scope for growth of the value of investments as time passes.
• Instruments of capital market possess liquidity, i.e., we can convert them into cash and cash equivalents when there
is a need for funds immediately with lower transactional costs.
• Investment in shares provides investors with ownership rights, which allows them to have a say in the company’s
management decision.

• Cons
1. With the wide range of investment alternatives present in the capital market, an investor may not be able to
decide what kind of investments to pursue, thus making it difficult for an investor to invest without a piece of
professional advice.
2. Buying and selling of securities may involve a brokerage fee, commission, etc. increasing the cost of transactions.
3. Investment in capital market are subject to market ups & downs.
Better market for individual to invest
• The money market is an unregulated and informal market and not
structured like the capital markets, where things are organized in a
formal way. Money market gives lesser return to investors who invest
in it but provides a variety of products.
• Capital market is regulated by SEBI and it gives a good amount of
returns if invested smartly.
• Thus, to build wealth an individual should invest in Capital market.