As a beginner to stock investment, you might have heard about the Money market and Stock market. Investors are confused about choosing the best investment options from these two, and some make the decision based on the emotional value. But, as an investor, you should be aware of the difference between these two markets as it will help you choose the best based on your requirements.
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In this blog, we’ll discuss the money market and stock market and, later, the differences between them.
WHAT IS A MONEY MARKET?
The money market is the market where lending and borrowing of short-term funds occur. In India, the money market is regulated by SEBI and RBI, and the maturity of the instruments in this market ranges from one day to one year. The transaction amount performed in the money market is high in terms of volume and amount. This is because a small number of big investors dominate the money market.
The Money market regulates liquidity in the economy through its intervention and allows investors to place funds for short-terms.
WHAT IS A STOCK MARKET?
The stock market is a trading platform that allows investors to invest in various financial instruments that include futures, bonds, shares, derivatives, etc. In India, BSE and NSE are the two stock exchanges, and the stocks present in BSE are also available in NSE. Investors are allowed to purchase and sell orders on the stock exchanges as per their requirements.
The stock market is classified into two types 1. Primary market and 2. Secondary market. In the primary market, a company register itself for the first time to get listed and offer their shares through an IPO. Once the company is listed, an investor can buy and sell shares in the secondary market.
Both the money market and stock market are used for investing and earning profits from the investments, but specific facts differentiate the money market from the stock market. Let’s have a look at the difference between the money market and the stock market.
DIFFERENCE BETWEEN MONEY MARKET & STOCK MARKET:
- The money market is the short-term trade-in debt, while the stock market is based on trade-in stocks and bonds.
- The money market is a constant flow of cash between governments, banks, corporations and financial institutions in terms of borrowing or lending money for a short period, not more than a year.
- The stock market consists of long-term and short-term assets purchased and sold by professional brokers, financial institutions and individual investors.
- The investment objective of the money market is to maintain wealth, whereas the investment objective of the stock market is to acquire more wealth.
- Investing in the money market will fetch you less return as a low-risk factor accompanies it. Investing in the stock market will bring you high returns and avoid risk factors by analyzing and choosing the best-performing stocks.
CHOOSE THE BEST INVESTMENT OPTION:
You should always choose the best investment option that meets your requirements. While investing in the stock market, continually analyze the performance of stocks by conducting fundamental and technical analysis. Similarly, while investing in the money market, look out for the interest rate offered and other factors.
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