An investor has always confusion regarding where to investment in Stock market or Money market
There are two types of financial markets viz. the money market and the capital market. The money market in that part of a financial market which deals in the borrowing and lending of short term loans generally for a period of less than or equal to 365 days. It is a mechanism to clear short term monetary transactions in an economy.
what is stock market…?
Most of the reader or investor must me very well known with the term “stock market” and so we not discussing much of it and so just sharing a small introduction.
The market in which shares are issued and traded either through exchanges or over-the-counter markets. Also known as the equity market, it is one of the most vital areas of a market economy as it provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company’s future performance.
what is money market…?
The most of the investor is not aware of this market and fact regarding the same. you as a investor think are you aware of what is money market it advantage or more basic thing which instruments can be included in this category today in this article i am going to share very basic thing of money market even we will compare the both financial market.
A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year.
Instrument of money market instrument
This is very short lsit of money market just to make you aware
- Money Market Instruments
- Treasury Bills (T-Bills)
- Commercial Papers (CPs)
- Repurchase Agreements (Repo)
- Banker’s Acceptance
Advantages of money market instrument
In spite of the relatively low returns, the money market can be a great way for investors to preserve, and even make, a little bit of money.
The biggest advantage and the most attractive feature of the money market is liquidity.
There are risks in every investment, but the money market is probably one of the safest places for your capital. After all, the funds are invested in relatively secure government or other short-term, high-quality debt.
Money market funds pay a yield based on the holdings of the underlying fund. The yield is generally automatically reinvested into the fund via purchase of additional shares in the fund. This yield makes money market funds an attractive alternative to the mattress.
comparison of money market and stock market
Capital markets are perhaps the most widely followed markets. Both the stock and bond markets are closely followed and their daily movements are analyzed as proxies for the general economic condition of the world markets. As a result,
the institutions operating in capital markets – stock exchanges, commercial banks and all types of corporations, including nonbank institutions such as insurance companies and mortgage banks – are carefully scrutinized.
1. Maturity Period:
The money market deals in the lending and borrowing of short-term finance (i.e., for one year or less), while the capital market deals in the lending and borrowing of long-term finance (i.e., for more than one year).
2. Credit Instruments:
.The main credit instruments of the money market are call money, collateral loans, acceptances, bills of exchange. On the other hand, the main instruments used in the capital market are stocks, shares, debentures, bonds, securities of the government.
3. Nature of Credit Instruments:
The credit instruments dealt with in the capital market are more heterogeneous than those in money market. Some homogeneity of credit instruments is needed for the operation of financial markets. Too much diversity creates problems for the investors.
.Important institutions operating in the’ money market are central banks, commercial banks, acceptance houses, nonbank financial institutions, bill brokers, etc. Important institutions of the capital market are stock exchanges, commercial banks and nonbank institutions, such as insurance companies, mortgage banks, building societies, etc.
5. Purpose of Loan:
.The money market meets the short-term credit needs of business; it provides working capital to the industrialists. The capital market, on the other hand, caters the long-term credit needs of the industrialists and provides fixed capital to buy land, machinery, etc.
.The degree of risk is small in the money market. The risk is much greater in capital market. The maturity of one year or less gives little time for a default to occur, so the risk is minimised. Risk varies both in degree and nature throughout the capital market.
7. Basic Role:
.The basic role of money market is that of liquidity adjustment. The basic role of capital market is that of putting capital to work, preferably to long-term, secure and productive employment.
8. Relation with Central Bank:
.The money market is closely and directly linked with central bank of the country. The capital market feels central bank’s influence, but mainly indirectly and through the money market.
There is usually a surge of investors looking to make the most of tax-free investment. The stock market show’s huge gains. An increasing number of investor tempts to invest in equity, rather than the other alternative like money market instrument…so where should be invested what is safe or risky? But… but… but…Alas…! No answer for that but surely to stop you from making common Mistake usually an investor dose. Investor should be all time panic, should keep ass on fire or crossing the fingers after investment decision…nope just you need..! To take precaution of not repeating other’s mistake?
1) Decision of right price and right time when to invest ..?
Buying just because it has been a big falter or riser recently.
Investing thrives on only one golden principle – buy low, sell high. Most new investors make mistakes in telling what is low and what is high, especially in a
m where decisions are based on various factors and technical parameters. Buyers buy at prices that they think is low enough – the same prices that seem high enough to the seller. Now, you can see that different conclusions can be drawn from the same market information. So, it’s very important that you study how to make decisions based in market parameters before jumping in. Before investing at all, you must know the right price for you to enter, the right time for you to invest, the amount of risk to take.
Buying an investment just because it is going up might sound silly but this is precisely what impulse investors do. Similarly, bargain hunting among shares or funds that have fallen heavily might seem tempting but quite often bad news begets more bad news – only buy in if you truly want to own it for the long term.
2) Putting all your eggs in one basket
Diversification is the best tool in investment and yeah all make most mistake here only
Another common investing mistake that beginners make is investing 100% of their money in a single type of asset. This is far from being a good decision. Most investors even go through the pain of investing in stocks in several industries and sectors. However, this is not true diversification because you are still focused on paper assets.
As a beginner, you should always commit less capital into any market you plan to invest in. This will help you study the market better with time. Once you have better knowledge of that market and you are more familiar with how things work, then you can afford to take bigger risks. To be truly diversified, you should invest in paper assets (stocks, bonds, insurance) and hard assets (Real estate, gold, businesses).
3) Falling in love with an investment
.You might be stuck following a certain sports team for life but there is no need to become emotionally attached. same way I have seen investor investing in those company who’s product, service he avail or following there attachment .so being emotional regarding company is foolishness rather being practical regarding is your investment is smartwork so do smart trading rather being emotional fool
4) Not learning the basics
Learning new thing in life is best habit.” we know age is not bar for learning new thing be always on your toes & get update yourself”
You will find may self proclaimed investors who don’t understand basic investment terms like support and resistance, volume, P/E, market cap, all time high, 52 week high, stock index, all time low, and so on. Always take your time to learn and understand these basics. The more you understand them, the clearer it becomes to you that the market is very complex.
5) carving for quick gains
Most new investors enter into the market because they expect to start making huge profits within a few months. This desperation leads them to making many mistakes, which eventually force them out of the market.
In investing, there are no quick gains, as profits accumulate over a long time. This could be more than 20 years. In fact, to most experienced investors, a short-term investment is one that is set for less than 3-4 years. So, if you are finding a means to get rich overnight, don’t consider investing.
6) Being too short term
.You should invest for a three to five year time horizon as a minimum – so there is no need to react to every market fluctuation. When constructing a portfolio it often makes sense to hold off buying. There is nothing wrong with dripping money into the markets or buying on the dips once your chosen investments have been identified.
7) fail to take opportunity’s
.There is nothing wrong with banking a profit, especially if an investment exceeds your expectations. Use profits to diversify your portfolio or to rebalance it. Re-balancing or buying into areas that have been struggling recently is often known as contrarily investing. This style often needs patience to work but can be very rewarding, but as detailed above, don’t buy just because it has been a big falter.
8) Not having enough time to monitor your investments properly
Usually a investor face the problem of monitoring there investment and so higher fund manager. But money is your concern and wealth so keep keen eye on you portfolio and check on it regularly
To have a portfolio of shares it is our view that you probably need at least 20 – so you will need a lot of time to monitor them. Funds need less monitoring, but you should certainly check them at least every six months.
..9) Being afraid of making a mistake – and doing nothing
“Being conservative is a good attribute to possess,but you being among one of those people who don’t do anything at all. Even when opportunity knocks man still has to get up and answer the door.”
This is the most foolish behavior of any investor being afraid of mistake better not to invest and is often heard people saying stock market is speculation should not invest in stock market better to keep long in bank or post-office etc
10) Doubling up on risk
A common mistake is having too much of a portfolio facing in one direction. For instance investing in mining funds and Chinese equities may bizarrely offer little diversification. As the mining sector is dependent on Chinese growth it may mean the two rise and fall virtually in tandem. Similarly, owning funds which have big stakes in shares you already hold.