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What are Money Markets and Who Regulates Them?

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August 11, 2022


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What is a money market? In this market, you can invest in securities that can be converted into money in a short period. You can also invest in securities with a short-term horizon that can be liquidated over a year or less. These markets are the enablers of monetary policy.

Now, here's a riddle for you. "I am a low-risk investment. I can give stable returns & those with short-term goals prefer me. I have a fixed interest rate & maturity period. Who am I?" If you guessed debt investment, you did well.

Money market investments are debt-based, have low risk, and offer fixed returns over a period. These are also known as fixed-income securities. But, not all debt instruments are money market instruments. Before delving deeper, let's understand how money markets are regulated.

What are Money Market Instruments?

Money market instruments in India are financial securities that are used to raise funds in the short-term. These instruments are typically issued by governments, financial institutions, and corporations and have a maturity period of up to one year. Some examples of money market instruments in India include:

  1. Treasury Bills (T-Bills): These are short-term debt securities issued by the government with a maturity period of up to one year. They are considered to be risk-free investments as they are issued by the government.
  2. Commercial Papers (CPs): These are short-term, unsecured promissory notes issued by companies to raise funds. They have a maturity period of up to one year and are issued at a discount to face value.
  3. Certificates of Deposit (CDs): These are short-term debt instruments issued by banks and financial institutions. They have a fixed maturity period and a fixed interest rate.
  4. Repurchase Agreements (Repos): These are short-term borrowing agreements in which a borrower sells a security to a lender with the agreement to repurchase it at a later date at a higher price.
  5. Government Securities (G-Sec): These are bonds issued by the government to raise funds. The maturity period of these bonds can be between 1 year and 30 years.

What is the Difference Between Money Market Instruments and Other Debt Instruments?

All money market instruments are debt investments, but all debt investments are not money market instruments. To deconstruct this definition, let's look at the features that differentiate these investments: 

Money market instruments are a subset of debt instruments, characterized by their short-term nature, lower risk, and lower potential returns. Other debt instruments encompass a broader range of debt investments with varying maturity periods, purposes, risks, and returns.


Money Market Instruments

Other Debt Instruments

Maturity Period

One year or less

Varying, often longer


T-bills, CDs, Repos, CPs

Government Securities, debentures, bonds, etc.


Short-term expenses

Various, including growth, expansion, and project funding


Lower risk

Varies with risk levels

Potential Returns

Lower potential returns

Potentially higher returns with higher risk

Who Regulates the Money Market in India? 

It's the RBI. The money market consists of debt investments of short tenures. The RBI is the regulator of the money market in India under sections 45K, 45L, and 45W of the RBI Act (1934). 

Here are a few guidelines set by the RBI for the money market instruments: 

1. Only commercial banks and select all-India financial institutions can issue CDs. The RBI permits only these organisations to issue CDs.

2. Only companies with a tangible net worth of at least ₹4 crores can issue CPs.

3. The issuers must have a sanctioned working capital limit by banks or financial institutions. 


Money market instruments are essentially debt investments of a short-term horizon of one day to one year. These investments have a comparatively lower risk and return potential than the other capital market-based debt instruments. The money market is the enabler of monetary policy since it enables the short-term demand and supply of funds. Some money market investments in India are T-bills, CDs, CPs and Repos. The banking regulator, the RBI, is also the regulator of the money market in India. 

Frequently Asked Questions 

1. Who controls the money market in India? 

In India, the RBI is the regulator of both the money market and banking. The money market enables the monetary policy as it operates the supply and demand for short-term funds. 

2. Who does the OCC regulate? 

This regulatory body operates in the United States of America. The Office of the Comptroller of Currency (OCC), an independent bureau of the treasury department in the United States, regulates all national banks in the US, federal savings associations and federal agencies and branches of international banks in the US. The OCC primarily regulates banks chartered under the National Banks Act in the US.

3. Who does the FDIC regulate? 

The Federal Deposit Insurance Corporation or the FDIC has the examining and supervisory role in ensuring the safety and soundness of financial institutions in the United States. The FDIC also makes complex and large financial institutions resolvable. The organisation also manages receiverships of these financial bodies.

4. What are the features of money market?

The money market is a segment of the financial market in which financial instruments with high liquidity and short-term maturities are traded. The main features of the money market are:

  1. Short-term maturity
  2. High liquidity
  3. Low risk
  4. Low returns
  5. Regulation
  6. Variety of instruments


Investment and securities are subject to market risks. Please read all the related documents carefully before investing. The contents of this article are for informational purposes only, and not to be taken as a recommendation to buy or sell securities, mutual funds, or any other financial products.
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