India's Financial Markets: Money Market to InvITs and REITs

Financial markets channel savings into investment, and India's system splits along a line UPSC tests separately: the money market, for funds needed up to one year, regulated mainly by the RBI, and the capital market, for funds raised for longer than a year, regulated mainly by SEBI. On top of this basic structure sit two things recent Prelims papers keep circling back to: the financial inclusion push built around the JAM trinity, and newer listed vehicles like InvITs and REITs.

The money market: short-term instruments

The RBI's own regulatory framework groups money market instruments into a few segments. Treasury Bills (T-bills) are issued by the Government of India in three tenors, 91-day, 182-day and 364-day, and are zero-coupon: sold at a discount to face value, with the difference being the investor's return, rather than paying periodic interest. The RBI can also issue Cash Management Bills, a very short-tenor instrument used to smooth temporary mismatches in government cash flow. Commercial Paper (CP) is an unsecured instrument, maturity up to one year, issued by companies (including NBFCs) and financial institutions to raise short-term working capital directly from the market instead of from a bank. Certificates of Deposit (CDs) are the bank-issued mirror of CP: negotiable, unsecured, also capped at one year's original maturity, issued only by banks. Below these sits the call, notice and term money market, an uncollateralised segment where only banks and primary dealers borrow from each other overnight (call), for up to 14 days (notice), or longer (term), within prudential limits the RBI sets.

Capital market: primary versus secondary, and who regulates what

The primary market is where fresh capital is actually raised: an IPO, FPO, rights issue, or preferential allotment creates new securities. The secondary market, stock exchanges like the NSE and BSE, is where already-issued securities change hands between investors; it adds no new capital to the issuing company but supplies the liquidity and price discovery that make the primary market attractive in the first place. SEBI is the overall regulator of the securities market under the SEBI Act, 1992, but the Government securities (G-sec) market sits with the RBI, not SEBI, traded mainly through the Negotiated Dealing System, Order Matching (NDS-OM), an anonymous electronic platform run by the Clearing Corporation of India Limited (CCIL). Individuals can now access G-secs directly through the RBI Retail Direct scheme, in addition to stock exchanges or a gilt account with a commercial bank.

Financial inclusion: the JAM trinity

JAM, Jan Dhan (a bank account), Aadhaar (identity), and Mobile (a payment and authentication rail), was proposed in the Economic Survey of 2014-15 to plug leakages in government subsidy transfers by routing them as Direct Benefit Transfers straight into a verified bank account. The Pradhan Mantri Jan Dhan Yojana (PMJDY), launched in 2014, is the banking leg of that trinity. The RBI's National Strategy for Financial Inclusion (NSFI) 2019-24, approved by the Financial Stability and Development Council and released in January 2020, builds on this base, framing financial inclusion as something that needs convergence across every financial-sector regulator (RBI, SEBI, IRDAI, PFRDA), not RBI action alone.

InvITs and REITs: the new-age vehicles

Both are SEBI-regulated trusts set up under the Indian Trusts Act, 1882, with the same tripartite structure: a sponsor who sets up the trust and transfers assets into it, a trustee (which must itself be a SEBI- registered debenture trustee, independent of the sponsor) who protects unit-holders' interests, and an investment manager who runs day-to-day operations. REITs invest in completed, rent-generating real estate; InvITs invest in infrastructure assets such as roads or power transmission lines, a Public InvIT's assets must be completed and revenue-generating, though a privately placed InvIT is allowed to hold under-construction assets too.

A Public InvIT must have a minimum asset value of ₹500 crore, a minimum initial offer size of ₹250 crore, and must distribute at least 90% of its net distributable cash flows (NDCF) to unit holders at least once every six months (once a year for privately placed InvITs). Borrowing is capped at 70% of InvIT assets for public and private listed InvITs. REIT regulations mirror the same ₹500 crore asset-value floor and the 90% NDCF distribution rule. Units of a listed InvIT or REIT trade on a recognised stock exchange just like equity shares once the initial offer is done.

Why this matters for the exam

UPSC likes testing the exact numbers, ₹500 crore, 90%, 70%, against each other in a matching or statement-based question, so keep them attached to the right vehicle rather than memorising them loose. The regulator split is another favourite trap: RBI runs the money market and the G-sec market, SEBI runs the broader capital market including InvITs and REITs, even though a corporate CP or CD looks, on the surface, like just another security. Confusing the primary market (fresh capital) with the secondary market (liquidity for existing holders) is a recurring statement-based distractor too. On financial inclusion, remember JAM as three specific pillars, not a vague "digital India" catch-all, since that specificity is usually what separates the right option from a plausible-sounding wrong one.

Quick revision points

• Money market (up to one year, RBI-regulated): T-bills (91/182/364-day, zero-coupon), CPs and CDs (up to one year), call/notice/term money (uncollateralised, banks and primary dealers only).
• Capital market (over one year): primary market raises fresh capital (IPO/FPO/rights), secondary market (NSE/BSE) gives liquidity; SEBI regulates the broader market, RBI runs the G-sec market via NDS-OM/CCIL.
• JAM trinity (Jan Dhan + Aadhaar + Mobile): plugs subsidy leakages via Direct Benefit Transfer; RBI's NSFI 2019-24 pushes financial inclusion more broadly.
• InvITs/REITs: SEBI-regulated trusts, minimum asset value ₹500 crore, must distribute at least 90% of NDCF, a public InvIT's borrowing is capped at 70% of its assets.

Lock in the regulator split and the InvIT/REIT numbers, then test yourself against real statement-based questions on this chapter.