MANIsh Singh Money Mrkt Ppt.

7/31/2019 MANIsh Singh Money Mrkt Ppt.

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Commercial papers & the mutual

funds are the major instrument

of money market.


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Commercial paperis a short-termobligation (either secured or unsecured) of

a large credit-worthyfirm (or foreign

government).

Short-term, in this case, meansless than 270 days.

Unsecured means that no

collateral backs the security. About

half of all commercial paper in the

U.S. is asset-backed and half isunsecured.


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Obligation means a debt that must

be repaid.

Large, credit worthy firms are the

only companies that have a strong

enough reputation to persuade

buyers to invest in an unsecured

security


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Appearance :


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1. Finance paper - The largest issuers of

commercial paper are banks and financecompanies.

Banks often borrow money through the

sale of short-term commercial paper and

then lend the money at a higher interest

rate over a longer term.


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2. Industrial paper - Industrial companies use

commercial paper to finance working capital (accounts

receivable and inventory) on both a permanent or

seasonal basis, to fund operating expenses, and

occasionally to finance, on a temporary basis,

construction projects.

3. Asset-backed paper - In the past, commercial

paper has typically been unsecured (i.e. has no

collateral). This is rapidly changing and investors are

increasing insisting that some of the company's assets

be pledged as collateral, in case the company is unableto pay upon maturity of the commercial paper.


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it is quick and cost effective way of raising working capital.

Best way to the company to take the advantage of short

term interest fluctuations in the market

It provides the exit option to the investors to quit the

investment.

They are cheaper than a bank loan.

It is unsecured and thus does not create any lienson assets of the company.

It has a wide range of maturity


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It is available only to a few selected blue chip and

profitable companies.

By issuing commercial paper, the credit availablefrom the banks may get reduced.

Issue of commercial paper is very closely

regulated by the RBI guidelines.


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A is a type of

professionally-managed collective investment

vehicle that pools money from many investorsto purchase securities.

The money thus collected is then invested

in capital market instrument such as shares,

Debentures and other securities


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The mutual fund industry in India started

in 1963 with the formulation of Unit Trust Of

India, at the initiative of the Government of

India and Reserve Bank.

SBI Mutual Fund was the first non- UTI

Mutual Fund established in June 1987.


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Diversification: Investing in a single security i.e. stock or

bond can be risky, where as owning a mutual fund that

holds numerous securities reduces risk significantly.

Minimal transaction costs: Buying individual stocks

and bonds is expensive in terms of transactions costs.

Each time an investor buys or sells, they have to pay a

brokerage fees along with many other expenses. Since,

the scale of purchases and sales are huge, the

transaction cost for mutual funds are less.


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Service: Mutual fund companies may also offer

other services, including automatic investment and

withdrawal plans; automatic reinvestment of interest,

dividends, capital gains and help with taxes.

Transparency: Strict government

regulations and high disclosure policy makes it a

good investment option. This also makes it safe.


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MANIsh Singh Money Mrkt Ppt.

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