Classification by Nature and Maturity of Claim

Financial markets are classified along several different angles at once — the same market can be described from more than one angle simultaneously (for example, a particular transaction can be a primary-market, capital-market, equity transaction, all at the same time). Two of the most basic classification angles are the nature of the claim the instrument creates, and the maturity period of that claim.

Classification by nature of claim — Debt market and Equity market:

• Debt market is the market for instruments that represent a fixed, contractual obligation on the part of the issuer to repay the principal amount along with a pre-decided rate of interest, regardless of whether the issuer earns a profit or not. Examples include debentures, bonds, and government securities. A debt holder is a creditor of the issuing entity, not an owner, and debt is usually repaid in priority over any payment to owners.
• Equity market is the market for instruments that represent part-ownership in the issuing company. Examples include equity shares. An equity holder (shareholder) is a part-owner of the company, and the return (dividend) is not fixed — it depends on the profits the company actually earns and on what the company's management decides to distribute, and an equity holder also bears the residual risk (and potential upside) of the business.

Classification by maturity of claim — Money market and Capital market:

• Money market is the market for short-term financial instruments, with a maturity period of up to one year, used mainly to meet the short-term working-capital and liquidity needs of businesses, banks, and the government. Examples include treasury bills, commercial paper, certificates of deposit, and call/notice money among banks.
• Capital market is the market for long-term financial instruments, with a maturity period of more than one year (or no fixed maturity at all, as with equity shares), used mainly to raise funds for long-term investment such as fixed assets and business expansion. Examples include equity shares, debentures/bonds, and government securities of longer tenure.