MONEY MARKET DEBT MARKET G-SEC MARKET CAPITAL MARKET

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MONEY MARKET DEBT MARKET G-SEC MARKET CAPITAL MARKET. MONEY MARKET. Money market means market where money or its equivalent can be traded. Money is synonym of liquidity. Money market consists of financial institutions and dealers in money or credit who wish to generate liquidity. - PowerPoint PPT Presentation

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<p>XIME SESSION IV</p> <p>MONEY MARKET DEBT MARKETG-SEC MARKETCAPITAL MARKET</p> <p> MONEY MARKETMoney market means market where money or its equivalent can be traded.Money is synonym of liquidity. Money market consists of financial institutions and dealers in money or credit who wish to generate liquidity. It is better known as a place where large institutions and government manage their short term cash needs. For generation of liquidity, short term borrowing and lending is done by these financial institutions and dealers. Money Market is part of financial market where instruments with high liquidity and very short term maturities are traded.Money market is a market where short term obligations such as treasury bills, commercial papers, CDs etc. are bought and sold.Benefits of Money MarketFor the lender/investor, it provides a good return on their funds.For the borrower, it enables rapid and relatively inexpensive acquisition of cash to cover short-term liabilities. One of the primary functions of money market is to provide focal point for RBIs intervention for influencing liquidity and general levels of interest rates in the economy. RBI being the main constituent in the money market aims at ensuring that liquidity and short term interest rates are consistent with the monetary policy objectives.Money Market &amp; Capital MarketMoney Market is a place for short term lending and borrowing, typically within a year.It deals in short term debt financing and investments. On the other hand, Capital Market refers to stock market, which refers to trading in shares and bonds of companies on recognized stock exchanges.Individual players generally cannot invest in money market as the value of investments is large.On the other hand, in capital market, anybody can make investments through a broker. Stock Market is associated with high risk and high return as against money market which is more secure. In case of money market, deals are transacted on phone or through electronic systems as against capital market where trading is through recognized stock exchanges.MONEY MARKET INSTRUMENTSCall Money MarketTreasury Bills marketCP &amp; CD marketCommercial Bills MarketDiscount MarketMoney Market Mutual funds(MMMFs)CALL MONEY MARKETCall Money Market is an overnight money marketParticipants include, SCBs( excluding RRBs), Co- Op banks( other than Land Development banks), Primary Dealers.NBFCs are not permitted to participate in the call money marketCall for 1 day is called overnight 2 to 14 days is called Notice money or Term moneyDealing session upto 5 pm on Week days and upto 2.30 pm on SaturdaysPRUDENTIAL EXPOSURE CEILINGS Participant Borrowing Lending SCBs 100% of Cap funds. 25% of Cap funds</p> <p> Co- op banks - 2% of Agg Deposits. No limit</p> <p> Primary Dealers - 200% of NOF 25% of NOFCapital funds = Tier I &amp; Tier II capitalPrimary Dealer= FI permitted to deal in Govt securities</p> <p>TREASURY BILLS MARKETTreasury bills are short term instruments of max 1 year issued by RBI on behalf of govt to tide over short term liquidity shortfalls.It is used by govt to raise short term funds to bridge seasonal or temporary gaps between receipts &amp; payments.It is a most important segment of money market in India.Enable investors to park their surplus in short term instruments with no risk </p> <p>Features of Treasury BillsT- bills are for 3 maturities. 91 days, 182 days &amp; 364 days.They are issued at a discount to the FVOn maturity, FV is paid to the investorsRate of discount &amp; corresponding issue price depend upon the prevailing market.Available for a minimum of Rs 25000/ &amp; in multiples of Rs 25000/They are tradable in the marketIt is held in the books of RBI under SGLSGL holdings can be transferred by issuance of SGL transfer form.Treasury BillsInvestors- Individuals, Firms, Companies, Corporate bodies, Trusts &amp; Institutions, banks, MFs, PFs, FIIs, etc.T Bill is eligible for SLR purposesAuction- 91 days on weekly basis - 182 days Wednesday preceding non Reporting Friday - 364 days- Wednesday preceding Reporting Friday - Even 14 days T bills are also issuedNo TDS on the interest earned.Highly liquid secondary marketNo risk</p> <p>Commercial Paper(CP)Issued by Corporates &amp; FIsMinimum Networth Rs 4 croreWC limit sanctioned by banksClassified as Standard AssetRating P2 of CRISIL or equivalentPeriod: Min 7 days &amp; Max 1 yearAmount: No minimum. But to be issued in denomination of Rs 5 lacsMaximum Amount of CP restricted to the value of RatingCP can be issued in demat form only.Can be issued as a standalone or standby productIPA can be a bank onlyInvestors : Individual, Firms, Corporates, banks, Fis, NRIs,etc.</p> <p>Certificate of Deposit(CD)It is a negotiable money market instrumentCDs can be issued by SCBs only( not RRBs &amp; local area banks)CDs can be issued by select AIFI as permitted by RBI to raise short term resourcesAmount Of CDs: Banks have the freedom to issue CD for the amount as required by themFIs within the umbrella limit for all borrowings upto 100%of NOF as per the latest ABSMinimum size: Rs 1 lakh &amp; Multiples thereofPeriod: Minimum 7 days &amp; Maximum 1 yearInterest: CDs can be issued at a discount to FV.Subscriber: Individuals, Corporates, Trusts, banks, FIs,etc. NRIs can invest but no repatriation.CDs are transferrable and there is no lock in period.No loan is permissible against CDs.Commercial Bill MarketCommercial bill is a short term , negotiable and self liquidating instrument.It is Bill of Exchange covered under NI Act 1881It is classified into Demand &amp; Usance billsDemand bill is payable on sight &amp; Usance bill is payable after a specified periodThe supplier upon raising the bills can get discount of bill from banks and get immediate cash. On the due date of the bill, bank realizes the money from the beneficiarys bank.There is no secondary market for this instrument.Discount MarketDiscount market comprises of institutions to provide liquidityFor this purpose, Discount &amp; Finance House of India(DFHI) was set up by RBI with PSBs &amp; FIs in 1988DFHI has been actively trading in Money market instruments by creating market by acting as a broker(PD) &amp; also providing refinance of bills.DFHI discount commercial &amp; Treasury bills to provide liquidityDFHI is also authorised to deal in Govt securities.</p> <p>Money Market Mutual Funds(MMMFs)MMMFs were introduced in 1991 to provide an additional short term avenue for investment to the individuals.MMMFs invest exclusively in money market instrumentsMMMFs mobilise savings from small investors and invest them in short term money market instrumentsMMMFs gets yield close to short term money market coupled with adequate liquidityMMMFs work under the purview of SEBI REPO &amp; REVERSE REPOIt is an effective tool used by RBI to manage short term liquidity in the banking systemRepo is a transaction where banks acquire immediate liquidity by selling securities, simultaneously undertaking to re purchase the same or similar security after a specified time at a specified price.This would enable injecting of liquidity into the banking systemReverse repo is a mechanism where banks buy security from RBI against cash.Under this route, RBI absorbs the liquidity and hence control excess supply of liquidity in the banking systemROI: Repo: 4.75% Reverse Repo 3.25%DEBT MARKETDebt Instruments are obligations of issuer of such instrument as regards certain future cash flow representing Interest &amp; Principal, which the issuer would pay to the legal owner of the Instrument. Debt Instruments are of various types like Bonds, Debentures, Government Securities (G secs) etcThe G-Secs market is the oldest and the largest component of the Indian debt market in terms of market capitalization, trading volumes and outstanding securities.The G-Secs market plays a vital role in the Indian economy as it provides the benchmark for determining the level of interest rates in the country through the yields on the government securities which are treated as the risk-free rate of return in any economy.Debt instruments provide fixed return declared as coupon rate. Retail investors would have a natural preference for fixed income returns and especially so in the current situation of increasing volatility in the financial marketsDebt MarketDebt Market is the most critical of the financial system of any economy &amp; acts as a fulcrum for economic developmentIn developed economies, debt market is much bigger than the capital or money marketThe Debt market comprises of: - Private Corporate Debt market - PSUs Bond Market - Govt. Securities MarketDebt market is a market for long term investments.The characteristic of an efficient debt market is competitive structure, low transaction cost, safe &amp; strong market infrastructure &amp; a high level of heterogeneity among market participantsDebt Market- ParticipantsSmall number of large players.PDs act as Market Makers in G-sec marketCentral &amp; State Govts.- To support the budget deficits &amp; to meet other financial requirementsPSUs- Issue Tax free &amp; taxable bonds to meet their Long Term funds requirementPSUs as also investors to park their surplus fundsCorporates- Both as Issuers &amp; InvestorsBanks- Both as Issuer of Bonds &amp; Investor of Debt instrumentsMutual fundsFIIsPFs DEBENTURE OR BONDSDebenture is a document to raise long term sourcesDebentures are generally secured and negotiableBearer debentures are negotiable &amp; transferrable by deliveryRegd Debenture not negotiable but can be transferred subject to transfer in the register of the companyDebentures generally have a maturity of over 3 years.Medium Term Deb= 1 to 5 years &amp; Long Term 5 to 12 yearsDebentures of over 18 months should have a credit ratingFor debentures of over 18 months, Debenture Redemption Reserve will have to be createdIn such cases DRR equal to 50% of the issue amount to be created before redemption commencesTypes of Debentures(Bonds)Convertible Debentures: - Convertible partially or fully into equity shares at a pre determined price &amp; time as stated in Prospectus - It is optional at the hands of debenture holdersNon convertible debentures are to be redeemed on the due dateDebentures may carry a fixed rate of interest or floating rate or Zero rate of interestDebenture may also carry Put( for investor) option or Call( for issuer) option at a specified timeSpecial Types of DebenturesDeep Discount Bonds: - The Bonds do not carry interest but is issued at a Deep Discount over the Face value - It is also referred to as Zero Coupon bonds. - In 1992, IDBI issued Deep discount bonds with a FV of Rs 1,00,000 issued at a Discounted price of Rs 2500/ for 25 years - Carried a Put &amp; Call option at the end of 5,9,12,15&amp; 20 years at a value of Rs 5300/,9600/, 15300/, 25000/, &amp; 50000/. - It helps the investors against Re-investment risk.Floating Rate BondsHere the Interest rates are linked to a market bench mark like T-Bill, deposit rate, etcSBI in 1993 issued these bonds @ 3% over the banks maximum deposit interest rateThese bonds protect the investor against inflation &amp; price rise</p> <p>Indexed Bonds: - It contains two parts. The first part( a portion) represent a fixed amount and the second part is floating linked to some Index rates like BSE, NSE etcG- SEC MARKETIt constitutes an important segment of the debt marketIt is a huge resource for the govt &amp; a bench mark for all corporate papers.These bonds carry Zero risk and hence termed as Gilt edged securitiesRBI issues these bonds on behalf of govt and is accounted through SGL a/c maintained by it.The GSec Market can be broadly classified into Central Government Securities, Treasury Bills, State Government Securities, Government Guaranteed Bonds and PSU Bonds.G secs are medium to long-term rupee denominated obligations issued by RBI on behalf of the Govt. of India to finance the Central Government's fiscal deficit. There are various types of GSecs such as fixed-rate bonds, floating rate bonds, zero coupon bonds, etc.Coupon payments on fixed rate and floating rate bonds are made semi-annually.</p> <p>G-Sec cont.dGSecs are not ratedCommercial banks are dominant investors in GSecs due to the RBI's requirement of SLR. The investor base also includes insurance companies, NBFCs, provident funds, pension funds and cash rich corporations. RBI also buys GSecs for open market operations.G-secs can be held by any person, NRIs, FIIs, firms, company, corporate body or institution, State governments, and trustsThe maturity period of GSecs ranges from 1 to 25years.Benefits: - Greater safety and lower volatility as compared to corporate bonds. - Transparency in transactions and simplified settlement procedures . - Higher leverage available in case of borrowings against G-Secs. - No TDS on interest payments. - Greater diversification opportunitiesCAPITAL MARKETPRIMARY MARKET: - Refers to long term flow of funds from new issues(primary issues) - Primary issues of the corporate sector lead to capital formation resulting in expansion of the economy.</p> <p>SECONDARY MARKET: - It is a market for existing securities - It provides eternal market for equities - It facilitates liquidity &amp; marketability of existing securities/equities - It contributes to the economic growth through disinvestment &amp; reinvestment - Provides instant valuation of securities</p> <p>Capital Market in IndiaImportant Stock Exchanges: - National Stock Exchange (NSE) - Bombay Stock Exchange (BSE) - Other Exchanges, viz. Ahmedabad, Blore, Baroda, Bhubaneswar, Chennai, Cochin, Coimbatore, Delhi, Guwahati, Hyderabad, Indore, Jaipur, Kanpur, Kolkata, Ludhiana, Mlore, Patna, Pune, Rajkot - Over The Counter Exchange of India(OTCEI) - Inter Connected Stock Exchange(ISE) - National Commodity &amp; Derivatives Exchange(NCDEX) - Multi Commodity Exchange( MCX)</p> <p>NSEStarted the operations from June 1994Provide nation wide trading facility for all types of securities including Derivatives, Futures &amp; Options Fully automated &amp; provide screen based tradingOwned by leading banks &amp; FIsIts main Index consist of 50 companies representing 25 sectors of the economyOther Stock Exchanges does similar functions of NSE CORPORATE FINANCECorporate Finance is a segment of finance which deals with the decision taken by the corporates to fund their requirements.The primary objective of such decision is to maximize the corporate value.The structure of corporate finance depends upon the period of funds requirement.It can be bifurcated into Long Term requirement &amp; Short Term requirement.Long Term funds requirement could be met by: - Equity OR - Debt OR - Combination of both at a specified percentage. </p> <p>CORPORATE FINANCESources of Long Term Finance:Equity: - Equity Capital, including Preference capital - Retained Earnings Debt: - Term Loans - Debenture...</p>