NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)

Money Market Instruments for NISM XXI-A: T-Bills, CP, CD and Repo

Updated 11 October 2026 · Fact-checked

Money market instruments are debt securities with an original maturity of up to one year. They include treasury bills, commercial paper, certificates of deposit, call money and repo. To solve exam questions, identify the issuer, maturity, whether it is discount-priced, and who can invest. Then match these to the instrument.

Understand Money Market Instruments

The money market is where short-term funds are borrowed and lent. Instruments here have an original maturity of up to one year. Governments, banks and companies use it to manage short-term cash needs. Investors use it to park surplus money with low risk and high liquidity.

Treasury bills (T-bills) are issued by the Government of India through the RBI. They are issued at a discount and redeemed at face value. There is no coupon. Your return is the gap between the purchase price and the face value. They are available in 91-day, 182-day and 364-day maturities. They carry no credit risk because the sovereign issues them.

Commercial paper (CP) is an unsecured, short-term promissory note issued by companies, usually large and well rated, to raise short-term funds. It is issued at a discount. Certificates of deposit (CDs) are issued by banks and eligible financial institutions against funds deposited with them. They are also issued at a discount. So the key difference is the issuer: companies issue CP, banks issue CDs. CP carries the issuer's credit risk, so ratings matter.

Repo means a sale of securities with an agreement to buy them back later at a higher price. The difference is the interest, called the repo rate. For the lender of cash it works like a secured short-term loan. A reverse repo is the same transaction seen from the other party's side: the party that buys securities and lends cash, with an agreement to sell them back later. Call money is overnight money. Notice money is for 2 to 14 days, and term money is for more than 14 days up to one year. The participants are mainly banks and primary dealers.

For PMS distribution, know why these matter. Portfolio managers use money market instruments for liquidity and for holding cash between investments. Questions test definitions, issuers, maturity and how discount pricing works.

Key formulas to remember

Discount-priced instrument price: Price = Face value ÷ (1 + Yield × Days ÷ 365); Used for T-bills, CP and CDs when yield is quoted as an annualised yield. Use the day count given in the question.
Yield on a discount instrument: Yield = (Face value − Price) ÷ Price × 365 ÷ Days; Divide by the price paid, not by the face value.
Absolute return over holding period: Return = (Face value − Price) ÷ Price; Annualise by multiplying by 365 ÷ Days.
Repo interest: Interest = Cash lent × Repo rate × Days ÷ 365; Repurchase price = Sale price + Interest.

How to solve Money Market Instruments questions

Use the same method for definition questions and for numerical questions on money market instruments.

1Read what is asked: a feature, the issuer, a maturity, a difference or a price.
2Find the issuer in the question. Government means T-bill. Company means CP. Bank means CD.
3Check the maturity. Money market means up to one year original maturity.
4Check how return is earned. Discount instruments have no coupon; return is face value minus price.
5For a numerical question, write the formula, put in face value, yield and days, and compute carefully.
6For repo, identify who sells the security and who lends the cash. The seller is the borrower of cash.
7Eliminate options that mix up issuer, maturity or credit risk, then pick the one that fits all facts.

Quickest way: Issuer-first elimination

When to use it: Use this for any statement-type or matching MCQ on instruments when time is short.

Pin the issuer first: Government, company or bank.
Recall the one fact tied to it: T-bills have no credit risk, CP is unsecured, CD is issued by banks.
Cross out options that give the wrong issuer or a maturity above one year.
For pricing, use Price = Face ÷ (1 + yield × days ÷ 365) and check that price is below face value.
If your computed price is above face value, you made an error.

Common mistakes in Money Market Instruments

Saying commercial paper is issued by banks.
CP and CD sound alike and both are issued at a discount.
Fix: Link CP to companies and CD to banks. Write this pair in your notes.
Thinking T-bills pay periodic interest.
Students mix them with government bonds.
Fix: T-bills are zero-coupon discount instruments. Return comes only from redemption at face value.
Calling T-bills risk-free in every sense.
No credit risk is read as no risk at all.
Fix: Say T-bills have no credit risk. Their price still moves with interest rates, though only slightly because maturity is short.
Dividing by face value when finding yield.
Students copy the bank discount idea.
Fix: Yield = (Face value − Price) ÷ Price × 365 ÷ Days. The base is the price paid.
Confusing who is the borrower in a repo.
The word 'sale' makes it look like the seller is lending.
Fix: The seller of securities receives cash, so the seller is the borrower. The buyer lends cash and holds the securities as security.

Worked examples

Example 1

A 91-day treasury bill with face value ₹1,00,000 is bought at a yield of 7.30% per annum. Using a 365-day year, what is the price, to the nearest rupee?

Show the solution

Face value = ₹1,00,000. Yield = 7.30% = 0.073. Days = 91.
Yield × Days ÷ 365 = 0.073 × 91 ÷ 365 = 0.0182.
Price = 1,00,000 ÷ 1.0182.
1,00,000 ÷ 1.0182 = ₹98,212.5 approximately, which rounds to ₹98,213.
Check: price is below face value, as it should be for a discount instrument.

Answer: About ₹98,213.

Example 2

Which one of these is correct? (a) CP is issued by banks to raise deposits. (b) CDs are issued by banks and eligible financial institutions at a discount. (c) T-bills pay half-yearly coupons. (d) Repo is a loan with maturity of five years.

Show the solution

Option (a): banks issue CDs, not CP. Companies issue CP. Wrong.
Option (c): T-bills are zero-coupon discount instruments. Wrong.
Option (d): repo is a short-term transaction, typically overnight to a few days or weeks and up to a year at most, not five years. Wrong.
Option (b): CDs are issued by banks and eligible financial institutions against deposits, at a discount. Correct.

Answer: Option (b).

Exam tips

Always tie the instrument to its issuer first. Most trap options swap CP and CD.
Remember that money market means original maturity up to one year. Reject options with longer maturity.
For price questions, check that your answer is below face value. This catches sign errors quickly.
Learn the T-bill maturities 91, 182 and 364 days. Questions often ask for these directly.
Read repo statements carefully: identify who gives cash and who gives securities before choosing.

Practice questions from Investing in Fixed Income Securities (NISM XXI-A)

Money Market Instruments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Money Market Instruments: frequently asked questions

What is the difference between commercial paper and a certificate of deposit?

Commercial paper is an unsecured short-term note issued by companies. A certificate of deposit is issued by banks and eligible financial institutions against deposits. Both are issued at a discount. CP carries the credit risk of the company, so ratings matter.

What are the features of treasury bills?

T-bills are issued by the Government of India through the RBI. They are zero-coupon, issued at a discount and redeemed at face value. They come in 91-day, 182-day and 364-day maturities and carry no credit risk.

How are treasury bills priced?

Price = Face value ÷ (1 + Yield × Days ÷ 365). The price is always below face value. The gap between price and face value is your return.

What is a repo?

A repo is a sale of securities with an agreement to repurchase them later at a higher price. The difference is the interest. For the cash lender, it works like a secured short-term loan.