Investing It!

Structure of Financial Market

imageAs an investor we are obsessed with profit and loss, bulls and bears and various other technical and psychological aspects of investing. Because of so much noise we are normally familiar with most famous investment avenues like Stock Market, Bonds, MF’s as everyone talks about it. But our understanding of how exactly the financial market in India operates suffers due to lack of awareness. In this article we will try to understand the technical and functional structure of Financial Market so that as an individual investor you can take more informed decisions and take your knowledge of financial market to the next level.



Technical Structure of Financial Market

Following picture clearly depicts the important blocks of Indian Financial Market together with governing body and the functional aspects.




As the structure is clear let’s focus on some important aspects of the building blocks and figure out why it is designed like this.


Capital Market and Money Market

Capital Market

Money Market

ð Operates through recognized exchanges(BSE/NSE)

ð Individual Investors can participate in secondary market

ð Primarily for long term investment’s although short term investment options are also there

ð High Risk/High Return market

ð It’s a virtual market and operates through phone lines, fax, computers and internet.

ð Individual Investors cannot participate as investment amount is very large

ð Primarily for short term lending and borrowing

ð It’s more secure in comparison

Capital Market is governed by SEBI

Money market is regulate by RBI


Capital Market and Money Market Instruments

Capital Market Instrument

Money Market Instrument

ð Equities

ð Bonds

ð Mutual Funds

ð Derivatives

ð Commodities

ð Currencies

ð Call/ Notice/ Term Money

ð Repo/ Reverse Repo

ð Inter Corporate Deposits

ð Commercial Paper

ð Certificate of Deposit

ð T-bills

ð Inter Bank Participation Certificate

Primary Players – Individual Investor, Financial Institutions, Banks, Corporate

Primary Players – Banks, Corporate, Financial Institutions, Provident Funds, Primary Players



Both money market and capital market has its own importance and benefits as one is primarily designed for long term planning and the other one for meeting short term commitments. It might seem that it’s difficult for an individual investor to participate in money market but it’s not completely true. There is a concept of Money Market Funds using which an individual investor can take exposure in money market. These funds are similar to any mutual fund in functioning and offered by most of mutual fund houses in India.


About Author

The author Bimlesh Singh is a CFA Level 2 candidate currently working as a business analyst in financial domain. He holds a Bachelor’s degree from IT-BHU. He can be reached at

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Published Nov 14 2011



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