Commercial papers & the mutual funds are the major instrument

of money market.

Commercial paper is a short-term obligation (either secured or unsecured) of a large credit-worthy firm (or foreign government). Short-term, in this case, means less 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 is unsecured.

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

Appearance :

1. Finance paper - The largest issuers of commercial paper are banks and finance companies. 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.

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 unable to pay upon maturity of the commercial paper.

 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 liens on assets of the company.
It has a wide range of maturity

 It is available only to a few selected blue chip and profitable companies.

By issuing commercial paper, the credit available from the banks may get reduced. Issue of commercial paper is very closely regulated by the RBI guidelines.

 A mutual fund is a type of professionally-managed collective investment vehicle that pools money from many investors to purchase securities. The money thus collected is then invested in capital market instrument such as shares, Debentures and other securities

 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.

 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.

 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.

 Performance: Generally, most actively managed mutual funds have not beaten their benchmarks over the longterm. While in some years actively managed funds outperform their index fund counterparts, there are times when its the other way round. Risks: Mutual funds are subject to both market-related risks and asset-related risks, particularly in very concentrated portfolios, which are not as well diversified. Professional management: Management is by no means infallible, and, even if the fund loses money, the manager still charges fees.