Money Market Funds: List of money market investment schemes

The money market refers to trading in very short-term debt investments. At the wholesale level, it involves large-volume trades between institutions and traders. At the retail level, it includes money market mutual funds bought by individual investors and money market accounts opened by bank customers.

 It is a very important element of the financial system.
 It is also known as the Short-Term Market.
 In Money, Market duration is from (0 Days- 364 Days)
 The risk factor is very small in this market because of its short duration.
 It is based on the management of liquidity.
 It is largely regulated by RBI and to an extent by SBI.
 It includes debt+equity.

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The money Market is divide into two parts:-

DFHI (Discount and Finance House of India)

 It was set up in March 1988 by RBI with the help of Public Sector Banks(PSBs) and others.
 Its main focus was to develop Money Market by becoming a primary dealer for selling or buying government securities.

Financial Market has two types of dealers:-

 Primary Dealer:- Any agency which purchases securities directly from the issuing company(i.e. All The Banks)
 Secondary Dealer:- Any agency which purchases securities from the investor, but not from the company which issues it (i.e. Any Investor).

Types of Money Market:-

Call Money is also known as Inter-Bank Market because maximum transactions (approx. 80%) takes place in this particular market.
The call money market is an integral part of the Indian Money Market, where the day-to-day surplus funds (mostly of banks) are traded. The loans are of short-term duration varying from 1 to 14 days. The money that is lent for one day in this market is known as “Call Money”, and if it exceeds one day (but less than 15 days) it is referred to as “Notice Money”. Term Money refers to Money lent for 15 days or more in the Interbank Market.

Banks borrow in this money market for the following purpose:

 To fill the gaps or temporary mismatches in funds
 To meet the CRR & SLR mandatory requirements as stipulated by the Central bank
 To meet the sudden demand for funds arising out of large outflows.

Thus call money usually serves the role of equilibrating the short-term liquidity position of banks

Call Money Market Participants:

  1. Those who can both borrow as well as lend in the market – RBI (through LAF) Banks, PDs.
  2.  Those who can only lend Financial institutions-LIC, UTI, GIC, IDBI, NABARD, ICICI and mutual funds etc.

Reserve Bank of India has framed a time schedule to phase out the second category
out of Call Money Market and make Call Money market as an exclusive market for
Bank/s & PD/s.

The average Interest rate of all the call money rates of big banks is decided by NSE
(National Stock Exchange).

What are Money Market Instruments? 

While the G-Secs market generally caters to investors with a long term investment horizon, the money market provides investment avenues of short term tenor. Money market transactions are generally used for funding the transactions in other markets including the G-Secs market and meeting short-term liquidity mismatches. By definition,
the money market is for a maximum tenor of up to one year.

Within one year, depending upon the tenors, the money market is classified into:

 Overnight market (Call Money Market)- The tenor of transactions is one working day.
 Notice money market – The tenor of the transactions is from 2 days to 14 days.
 Term money market – The tenor of the transactions is from 15 days to one year.

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Money Market Instruments types:-

Treasury Bills:

Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 days, 182 days and 364 days. Treasury bills are zero-coupon securities and pay no interest. They are issued at a discount and redeemed at the face value at maturity.

Cash Management Bill:

In 2010, the Government of India, in consultation with RBI introduced a new short-term instrument, known as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government of India. The CMBs have the generic character of T-bills but are issued for maturities less than 91 days.
‘Shut period’ means the period for which the securities can not be traded. During the period under shut, no trading of the security which is under shut is allowed. The main purpose of having a shut period is to facilitate the finalizing of the payment of maturity redemption proceeds and to avoid any change in ownership of securities during this process. Currently, the shut period for the securities held in SGL accounts is one day.

Commercial Paper:

Commercial Papers are short term borrowings by Corporates, FIs, PDs, from Money Market.


Commercial Papers when issued in Physical Form are negotiable by endorsement and delivery and hence highly flexible instruments
 Issued subject to a minimum of Rs 5 lakhs and in the multiples of Rs. 5 Lac thereafter,
 Maturity is 15 days to 1 year
 Unsecured and backed by the credit of the issuing company
 Can be issued with or without Backstop facility of Bank / FI

Eligibility Criteria

 Any private/public sector co. wishing to raise money through the CP market has to meet the following requirements:
 Tangible net-worth not less than Rs 4 crore – as per last audited statement
 Should have Working Capital limit sanctioned by a bank / FI
 Credit Rating not lower than P2 or its equivalent – by Credit Rating Agency approved by Reserve Bank of India.
 Board resolution authorizing the company to issue CPs
 PD and AIFIs can also issue Commercial Papers

 Commercial Papers can be issued in both physical and Demat form. When issued in the physical form Commercial Papers are issued in the form of Usance Promissory Note. Commercial Papers are issued in the form of a discount to the face value.

 Commercial Papers are short-term unsecured borrowings by reputed companies that are financially strong and carry a high credit rating. These are sold directly by the issuers to the investors or else placed by borrowers through agents/brokers etc.
 FIMMDA has issued operational and documentation guidelines, in consultation with the Reserve Bank of India, on Commercial Paper for the market.

Certificate of Deposit:

 CDs are short-term borrowings in the form of Usance Promissory Notes having a maturity of not less than 15 days up to a maximum of one year.
 CD is subject to payment of Stamp Duty under the Indian Stamp Act, 1899 (Central Act)

 They are like bank term deposit accounts. Unlike traditional time deposits, these are freely negotiable instruments and are often referred to as Negotiable Certificate of Deposits

Features of CD:

 All scheduled banks (except RRBs and Co-operative banks) are eligible to issue CDs
 Issued to individuals, corporations, trusts, funds and associations
 They are issued at a discount rate freely determined by the issuer and the market/investors.
 Freely transferable by endorsement and delivery. At present CDs are issued in physical form (UPN)

These are issued in denominations of Rs.5 Lacs and Rs. 1 Lac thereafter. Bank CDs have the maturity for up to one year. The minimum period for a bank CD is fifteen days. Financial
Institutions are allowed to issue CDs for a period between 1 year and up to 3 years.
CDs issued by AIFI are also issued in physical form (in the form of Usance promissory
note) and is issued at a discount to the face value.
Face Value is a value on which anything is offered to us.

What is the role of the Clearing Corporation of India Limited (CCIL)?

The CCIL is the clearing agency for G-Secs. It acts as a Central Counter Party (CCP) for all transactions in G-Secs by interposing itself between two counterparties. In effect, during settlement, the CCP becomes the seller to the buyer and the buyer to the seller of the actual transaction. All outright trades undertaken in the OTC market and on the NDS-OM platform are cleared through the CCIL. Once CCIL receives the trade information, it works out participant-wise net obligations on both the securities and the fund’s leg. The payable/receivable position of the constituents (gilt account holders) is reflected against their respective custodians. CCIL forwards the settlement file containing the net position of participants to the RBI where settlement takes place by simultaneous transfer of funds and securities under the ‘Delivery versus Payment’ system. CCIL also guarantees the settlement of all trades in G-Secs. That means, during the settlement process, if any participant fails to provide funds/ securities, CCIL will make the same available from its own means. For this purpose, CCIL collects margins from all participants and maintains the ‘Settlement Guarantee Fund’.

What is the shut period?

‘Shut period’ means the period for which the securities can not be traded. During the period under shut, no trading of the security which is under shut is allowed. The main purpose of having a shut period is to facilitate the finalizing of the payment of maturity redemption proceeds and to avoid any change in ownership of securities during this process. Currently, the shut period for the securities held in SGL accounts is one day.

G-Secs are also known as gilts or gilt-edged securities. “G-Sec” means a security created and issued by the Government for the purpose of raising a public loan or for any other purpose as may be notified by the Government in the Official Gazette and having one of the forms mentioned in the G-Secs Act, 2006.

What are the role and functions of FIMMDA?

 The Fixed Income Money Market and Derivatives Association of India (FIMMDA), an association of Scheduled Commercial Banks, Public Financial Institutions, Primary Dealers and Insurance Companies was incorporated as a Company under section 25 of the Companies Act,1956 on June 3, 1998.
 FIMMDA is a voluntary market body for the bond, money and derivatives markets.
 FIMMDA has members representing all major institutional segments of the market.
 The membership includes Nationalized Banks such as State Bank of India, its associate banks and other nationalized banks; Private sector banks such as ICICI Bank, HDFC Bank; Foreign Banks such as Bank of America, Citibank, Financial institutions such as IDFC, EXIM Bank, NABARD, Insurance Companies like Life Insurance Corporation of India (LIC), ICICI Prudential Life Insurance Company, Birla Sun Life Insurance Company and all Primary Dealers.
 FIMMDA represents market participants and aids the development of the bond, money and derivatives markets.
 It acts as an interface with the regulators on various issues that impact the functioning of these markets.
 It also undertakes developmental activities, such as the introduction of benchmark rates and new derivatives instruments, etc. FIMMDA releases rates of various G-Secs that are used by market participants for valuation purposes.
 FIMMDA also plays a constructive role in the evolution of best market practices by its members so that the market as a whole operates transparently as well as efficiently.