Instruments Dealt in a Money Market and Bill Market in India

A money market deals with near money or short term credit instruments.
The chief short term credit instruments that are dealt with in a money market…
1) Trade Bills Short term periods of 1/2/3/6 months
Accepted either by the purchasers of goods or by banks or
acceptance houses on their behalf.
2) Bankers’
Acceptance
Bills of exchange drawn by business concerns on specified
banks.
3) Commercial
Papers
These are promissory notes given by certain well known
business house.
They are issued for period of 3 or 6 months.
4) Treasury Bills These are promissory notes of 90 days maturity issued by the
government.
They don’t carry interest.
5) Sort term
Government Bonds
Short term government bonds are securities issued by the
Government for short periods.
6) Hundi This is unique feature of the indigenous sector of the Indian
Money Market.
They are inland bills of exchange drawn in vernacular
languages.
They can be used either for making payments or for transferring
funds from one place to another.

Bill Market in India – The evolution of the Bill Market in India
A bill market is the market for short term bills, which are generally of 3 months
duration.
Bills are promises to pay a specified amount by a particular company or the
government & may be bought and sold in the bill market.
1) Commercial Bills Companies for production process use bank credit.
Trade credit is used for buying & selling of materials.
2) Commercial Banks Liquid funds
Find short term bills highly attractive for the interest income &
also because of their shift ability to the central bank.
3) Central Bank Controlling & influencing the market the central bank can control
the volume of trade credit available to industry & business.

Origin of the Bill Market
It was developed as an important weapon to influence the money market.
1) There was generally strict financial discipline.
2) The hundi which was the indigenous bill of exchange could not be
converted into proper bill of exchange.
3) The indigenous bankers who specialized in hundi business were unwilling
to convent themselves into discount houses.
4) The bills are not subject to any specified time limit.
5) The stamp duty on such bills was unusually high.
6) RBI was asked to create the bill maker or discount market.

Prospects for the Bill Market in India
3 types of customers who may not be amenable to the bill system of finance.
a) Large customers – Bulk buyers & substantial parties – social concessions
b) Weak parties – finances are always precariously
c) Public sector – Delaying payments on account…

Investment Portfolio Management
3 concepts of Investment…
1) Economic Investment
The term investment refers to net additions to the capital stock
of society.
The term stock includes goods which are used in the production
of other goods.
2) Business
Investment
It refers to the money to be put or held in a private business.
3) Financial
Investment
This refers to putting money into securities, i.e. shares /
debentures, real estate, mortgages, etc.

Investment & Speculation
The dealings in securities with the purpose of getting a fair return on the
investment, is called investment.
The purchase & sale of securities on stock exchange with purpose of making
profits out of price fluctuations is termed as speculation.
The difference between investment & speculation may be as follows

Speculation & Gambling
Gambling represents creation of risk not previously existing.
Speculation involves taking of risks that are implicit in a situation & so must be
taken by someone.
Speculation is taking of risk which appears justified after carefully studying the
pros & cons.
Gambling involves taking risk without adequate study.

Meaning of Investment Portfolio & Investment Portfolio Management
A collection of unrelated assets, but a carefully blended asset combination,
within a unified framework.
Management means utilization of resource in the best possible manner.
Investment Portfolio management – Combination of securities which comprise
the investor’s portfolio in a manner that they give maximum return with
minimum risk.
Any investment can conveniently be divided into 2 groups…
1. Individual Investor
2. Institutional Investor
 Individual Investors
Individual investors do not usually have time to research a share / debenture
in depth.
Investment selection becomes almost a hit & run operation for individual
investor.
An average investor may not be able to devote sufficient time.
 Institutional Investors
The Institutional investors have both time & resources to dig deeper than the
individual investors.
They can employ skilled economists, financial analysts & investment managers.
The institutional investor can have continuous review & scrutiny of his
investment portfolio.
The institutional investors own a major portion of the corporate securities.