Differences between Money Markets and Capital Markets.                       
          Major Points  Money Markets                                   Capital Markets 
        Participant         Institutional  participants  like  RBI,  Financial  institutions,  banks,  corporate 
                           banks,     financial    institutions   and  entities,  foreign  investors  and  ordinary 
                           finance       companies.        Individual  retail investors from the members of the 
                           investors are permitted to transact but  public. 
                           do not normally do so 
        Instruments         Short term debt instruments such as  Equity  shares,  debentures,  bonds  and 
                           T-bills, trade bills reports, commercial  preference shares etc. 
                           paper and certificate of deposit. 
        Investment         Transactions  require    huge  sums  of  Do not require a huge financial outlay. 
        Outlay             money and are quite expensive                The  value  of  units  of  securities  is 
                                                                        generally  low  i.e.  Rs.  10,  100  and 
                                                                        minimum  trading  lot  of  shares  is  kept 
                                                                        small as  50 or 100 units. 
        Duration           Instruments usually have a maximum  Deals  in  medium  and  long  term 
                           tenure of one year and may even be  securities  such  as  equity  share  and 
                           issued for a single day.                     debentures 
                           Higher  liquidity  since  the  DFHI  the  Considered          as    liquid    instruments 
        Liquidity          Discount Finance House of India has  because  they  are  marketable  on  the 
                           been  established  for  the  specific  stock  exchanges,  However it  might  be 
                           objective of providing a ready market  difficult to find a buyer sometimes with 
                           for these instruments.                       the fluctuations of the stock market. 
                            Minimum risk and are safer since the  Riskier because of the long duration and 
        Safety             issuers mostly are the agencies of the  may  be  the  issuing  companies  fail  to 
                           Government and also because of the  perform  as  per  the  projection  shown 
                           shorter duration.                            during issue. 
                                                                         
        Expected            Less                                         High  for  long  duration  earnings  are 
        return                                                          through dividend and bonus shares. 
         
        Mutual Funds: 
        In everyday terms, a mutual fund is a pool of money collected for investment in the stock market or 
        money markets for optimum returns. According to the Investor Words definition, a mutual fund is 
        an open-ended fund operated by an investment company, which raises money from shareholders 
        and invests in a group of assets, in accordance with a stated set of objectives. For most mutual 
        funds, shareholders are free to sell their shares at any time, although the price of a share in a 
        mutual fund will fluctuate daily, depending upon the performance of the securities held by the fund. 
        Just as Banks have the Reserve Bank of India, the Securities and Exchange Board of India (SEBI) 
        is the regulatory authority for Mutual Funds. 
        In  their  offer  document,  mutual  funds  announce  the  manner  in  which  the  money  would  be 
        invested, whether in stocks or elsewhere, in what proportion, and also provide a risk assessment 
        of the scheme for the investor's information. But one must be aware that higher returns are always 
        accompanied by high risks. Besides, mutual fund investments are subject to market risks, so do 
        read the offer document carefully before you invest. You have the option to invest when a new 
        fund is launched or you can invest in an on-going scheme, which has a satisfactory performance 
        record. A one-time compliance of the Know Your Customer (KYC) norm is essential before you 
        can invest in mutual funds. 
        Exercise due diligence before investing. Repose trust in the fund. And set a reasonable time for 
        the fruits to ripen before you pluck 
        PROS 
        -Your investment is in the hands of an expert. The fund manager is ably supported by a team of 
        analysts and researchers and therefore, you can hope for an efficient and judicious handling of 
    your money. Over a decent stretch of time, wealth creation is possible, when the returns are 
    greater than the tax and inflation rates. 
    -Investment can be in small or big amounts, in regular SIPs (Systematic Investment Plan) or at 
    random intervals, entirely at your convenience. 
    -You  will  be  able  to  create  a  diverse  portfolio  so  that  all  the  eggs  are  not  in  one  basket.  A 
    downtrend in one segment of the economy will be offset by another. This is important when you 
    have no clue about the various companies listed in the exchanges. 
    -The Net Asset Value (NAV) of your investment is available online. This enables the ease of 
    tracking your investment at your convenience. Redemption or encashment is easy. The end-of-
    day value as declared by the fund, multiplied by the number of units held by you will be credited to 
    the bank account provided by you. 
    -Tax benefits accrue. Investments in specified schemes are tax deductible. Dividend income is tax 
    exempt and the redemption after three years does not attract capital gains tax. 
    CONS 
    -When you invest, there is an entry load or charge. This means that if you invest Rs. 5,000, after 
    deduction maybe Rs.4,900 or so is actually invested. Straightaway, there is a sense of loss. In 
    certain cases, at the time of redemption, there may be an exit load too. 
    -Mutual funds are best in the long term, more than five years or even closer to 10. They are also 
    subject to market risks. In the event of a fall in the market, the principal you had put in can be fast 
    eroded and rebuilding the corpus can be quite a painful experience. 
    -As an amateur and believing in the long term, you may unknowingly continue to put in money in a 
    losing venture. There may be occasions when the erosion and uncertainty can cause unnecessary 
    panic. 
    -Though in the hands of experts, not all funds have been able to generate excellent returns 
    consistently. And as past performance is not a measure of the future, for your own sake, you need 
    to stay invested and be alert and aware of economic developments. 
    -There  is  no  assurance  or  guarantee  of  return,  either  of  the  principal  or  of  dividend.  Future 
    projections are at best theoretical. A healthy risk appetite is recommended.  
     
    What is Net Asset Value (NAV) of a scheme? The performance of a particular scheme of a mutual 
    fund is denoted by Net Asset Value (NAV). Mutual funds invest the money collected from the 
    investors  in  securities  markets.  In  simple  words,  Net  Asset  Value  is  the  market  value  of  the 
    securities held by the scheme. Since market value of securities changes every day, NAV of a 
    scheme also varies on day to day basis. The NAV per unit is the market value of securities of a 
    scheme divided by the total number of units of the scheme on any particular date. For example, if 
    the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has 
    issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. 
    NAV is required to  be  disclosed  by  the  mutual  funds  on  a  regular  basis  -  daily  or  weekly  - 
    depending on the type of scheme.  
     
    What are the different types of mutual fund schemes? Schemes according to Maturity Period: A 
    mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending 
    on its maturity period. Open-ended Fund/ Scheme An open-ended fund or scheme is one that is 
    available for subscription and repurchase on a continuous basis. These schemes do not have a 
    fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) 
    related  prices  which  are  declared  on  a  daily  basis.  The  key  feature  of  open-end  schemes  is 
    liquidity.  Close-ended Fund/ Scheme A close-ended fund or scheme has a stipulated maturity 
    period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of 
    launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and 
    thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are 
    listed. In order to provide an exit route to the investors, some close-ended funds give an option of 
    selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI 
    Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either 
    repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose 
    NAV generally on weekly basis. 
     
    SPOT MARKET 
    What It Is: 
    Also called the cash market or the physical market, the spot market is where assets are sold for 
    cash and delivered immediately. 
    How It Works/Example: 
    Spot markets differ from futures markets in that delivery takes place immediately. For example, if 
    you wish to purchase Company XYZ shares and own them immediately, you would go to the 
    cash market on which the shares are traded (the New York Stock Exchange, for example). If you 
    wanted to buy gold on the spot market, you could go to a coin dealer and exchange cash for gold. 
     
    The foreign exchange (FOREX) market is one of the largest spot markets in the world. People and 
    companies all over the world are constantly exchanging one currency for another as transactions 
    occur all over the globe. 
    Why It Matters: 
    It is important to know the difference between the spot market and the futures market as well as 
    the difference between spot prices and futures prices. This difference -- known as the time spread 
    -- is important economically because it illuminates the market's expectations about futures prices.  
     
    For the most part, spot markets are influenced solely by supply and demand, whereas futures 
    markets are also influenced by expectations about future prices, storage costs, weather 
    predictions (for perishable commodities in particular), and a host of other factors. 
    FUTURES MARKET 
    What It Is: 
    Futures are financial contracts giving the buyer an obligation to purchase an asset (and the seller 
    an obligation to sell an asset) at a set price at a future point in time. 
    How It Works/Example: 
    Futures are also called futures contracts. 
    The assets often traded in futures contracts include commodities, stocks, and bonds. Grain, 
    precious metals, electricity, oil, meat, orange juice, and natural gas are traditional examples of 
    commodities, but foreign currencies, emissions credits, bandwidth, and certain financial 
    instruments are also part of today's commodity markets. 
     
    There are two kinds of futures traders: hedgers and speculators. Hedgers do not usually seek 
    a profit by trading commodities but rather seek to stabilize the revenues or costs of their business 
    operations. Their gains or losses are usually offset to some degree by a corresponding loss or 
    gain in the market for the underlying physical commodity.  
     
    Speculators are usually not interested in taking possession of the underlying assets. They 
    essentially place bets on the future prices of certain commodities. Thus, if you disagree with the 
    consensus that wheat prices are going to fall, you might buy a futures contract. If your prediction is 
    right and wheat prices increase, you could make money by selling the futures contract (which is 
    now worth a lot more) before it expires (this prevents you from having to take delivery of the wheat 
    as well). Speculators are often blamed for big price swings, but they also provide liquidity to the 
    futures market. 
     
    Futures contracts are standardized, meaning that they specify the underlying commodity's quality, 
    quantity, and delivery so that the prices mean the same thing to everyone in the market. For 
    example, each kind of crude oil (light sweet crude, for example) must meet the same quality 
    specifications so that light sweet crude from one producer is no different from another and the 
    buyer of light sweet crude futures knows exactly what he's getting. 
     
    Futures exchanges depend on clearing members to manage the payments between buyer and 
    seller. They are usually large banks and financial services companies. Clearing 
    members guarantee each trade and thus require traders to make good-faith deposits (called 
    margins) in order to ensure that the trader has sufficient funds to handle potential losses and will 
    not default on the trade. The risk borne by clearing members lends further support to the strict 
    quality, quantity, and delivery specifications of futures contracts. 
     
    Regulation 
    The Commodity Futures Trading Commission (CFTC) regulates commodities futures trading 
    through its enforcement of the Commodity Exchange Act of 1974 and the Commodity Futures 
    Modernization Act of 2000. The CFTC works to ensure the competitiveness, efficiency, and 
    integrity of the commodities futures markets and protects against manipulation, abusive trading, 
    and fraud. 
     
    Futures Exchanges 
    There are several futures exchanges. Common ones include The New York Mercantile Exchange, 
    the Chicago Board of Trade, the Chicago Mercantile Exchange, the Chicago Board of Options 
    Exchange, the Chicago Climate Futures Exchange, the Kansas City Board of Trade, and the 
    Minneapolis Grain Exchange. 
    Why It Matters: 
    Futures are a great way for companies involved in the commodities industries to stabilize their 
    prices and thus their operations and financial performance. Futures give them the ability to "set" 
    prices or costs well in advance, which in turn allows them to plan better, smooth out cash flows, 
    and communicate with shareholders more confidently. 
     
    Futures’ trading is a zero-sum game; that is, if somebody makes a million dollars, somebody else 
    loses a million dollars. Because futures contracts can be purchased on margin, meaning that the 
    investor can buy a contract with a partial loan from his or her broker, futures traders have an 
    incredible amount of leverage with which to trade thousands or millions of dollars worth of 
    contracts with very little of their own money. 
    For additional reading: 
    http://web.mit.edu/rpindyck/www/Papers/Dynamics_Comm_Spot.pdf