Difference between Capital and Money Market

Capital and money market both are used by companies to raise capital from public, however there are many differences between two of them in the way how they operate. Let’s look at some of the differences between the two –

  1. While money market deals in short term securities ranging from 1 day to 1 year in tenure while capital market deals in securities which are long term nature so for example if a company has raised an IPO it won’t be winding up it in 1 or 2 year rather it’s a long term source of capital.
  2. While capital Market is classified as primary and secondary market there is no classification of that sort in case of money market.
  3. Examples of money market instruments are interbank call money, certificate of deposits, treasury bills, commercial paper and so on. While capital market instruments include equity shares, preference shares, exchange traded funds, debentures and so on.
  4. The participants in money market are few like Banks, central bank, government whereas the numbers of participants in capital market are many like retail investors, mutual funds, HNI, companies and so on.
  5. As far as liquidity is concerned money market are more liquid because of presence of big players and also there is less risk while capital market are inherently risky and that is the reason why not many people participate in in which leads to lack of liquidity.
  6. While capital market is dependent on many factors like liquidity, global economic environment, interest rates, government policies and so on whereas money market are mainly dependent on interest rates and general liquidity which is floating in the environment.

Though there are many differences between the two these both are required for a country in order to grow because they both are the backbones for financial market which in turn is necessary for growth of the country

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