Understand The Differences In The Money Market And Capital Market Before You Invest

Illustration of the money market (Skitterphoto-Pixabay).

YOGYAKARTA The term capital market and money market may be familiarly heard by people who like to invest. Considering that both markets are places for transactions related to investment. So, what are the differences in the money market and capital market?

Understanding the Money Market

What is meant by the money market is a market mechanism that allows investors to be able to make transactions through banking institutions or financial securities institutions other than banks.

The money market is a place to borrow funds for individuals with interest rates as a reward or profit offered to funders.

Transactions carried out in the money market can be done alone or through intermediaries (brokers). Loan funds obtained through the money market have a period of returns (tensors) which tend to be short, ranging from one day to one maximum year.

Capital Market

The capital market can be interpreted as a place to meet investors and issuers. The parties who have funds are referred to as investors. Meanwhile, issuers are parties who come from business entities that require capital.

The capital market is a place for long-term funding. Therefore, instruments traded in the capital market are usually in the form of stocks, bonds, and mutual funds.

In addition, the capital market also has other instruments such as exchange-traded funds (ETFs) and derivatives.

Differences in the Money Market and Capital Market

From the explanation above, it can conclude that the basic differences in the money market and capital market are the money market being a place for securities transactions for the pedek period. Meanwhile, the capital market is a place for securities transactions to obtain long-term funding.

Compiled by VOI from various sources, Monday, October 10, 2022, the market for money and capital has differences in terms of:

The following is an explanation of the six points:

The money markets and the capital market each have their own investment instruments.

The types of investment instruments in the capital market are:

Meanwhile, the types of investment instruments in the capital market include:

Transactions in the money market can be done on their own. Meanwhile, transactions in the capital market must be carried out through intermediaries, namely legal securities in Indonesia.

Transactions in the money market are overseen by Bank Indonesia. Meanwhile, the capital market is closely monitored by the Indonesia Stock Exchange. Both institutions have the authority to regulate the running of market transactions.

Investment instruments in the money market are disbursed more quickly in the form of money rather than the investment instruments available in the capital market.

The risk of investing in the money market tends to be lower than the risk of investing in the capital market.

The returns from the aka the profits obtained through investment in the money market are lower. The reason is, the level of risk in the money market is also not high.

Meanwhile, the capital market tends to provide high returns. Because the way it works is more complicated and in-depth analysis is needed for all decisions related to its investment.

That's information about differences in the money market and capital market. By knowing the differences between the two, you can determine the right investment instruments.