Money Market Funds

Money Market Funds

Money Market Funds are one of the categorized debt funds that invest in different money markets instruments to profit more returns and high-level liquidity with a short-term maturity. Based on returns, risk factors and holding period these money market investment funds divided into different types of investment instruments. These debt funds have the short maturity period ranging from 90 days of 365 days. So, this would be a better choice for the short-term investors.

What are the types of Money Market Instruments?

T - Bills or Treasury Bills:

Treasury bills are safer fund options as they are issued by government of India. Though this option is of lower risk, but they offer lower returns when compared with the other money market instruments.

Certificate of Deposit or CD:

It is a term deposit investment element which is offered by the scheduled commercial banks, and they do not offer the option of premature redemption, but Certificate of Deposit are freely negotiable. Under this scheme an agreement of repurchase is made between a bank and RBI or between any two banks, that helps to facilitate short term loans.

CP or Commercial Paper:

CP is an unsecured promissory short term note which is issued by high credit This money market instrument helps to diversify their borrowing short-term sources. In such case the investor earns the difference as they are offered with discount rate and the redemption is applied over the face value.

What are the factors of Money Market Funds?

Risks:

As these instruments invest in the money market, they come with the interest rate risks, credit risks, etc. So, individuals who are willing with higher risk regime.

Returns:

These debt fund types offer better returns than the normal savings accounts. As the fund manager invests in higher risk component to earn higher returns.

NAV or Net Asset Value:

NAV is not stable this changes with the interest rate fluctuations. Usually, the NAV is calculated for 90 days or it depends on investment funds.

Expense Ratio:

Expense ratio has effects on the returns, so look for the lower expense ratio to maximize your returns.

Look for your investment plan:

Before investing in money market funds, check your investment plan as the holding period is 1 year and the associated risks and returns consider these and go ahead for investing.

Tax:

Short term capital gain tax applicable if the holding period is for e years. And long-term capital gain tax is applicable as the lock period or the horizon is more than 3 years.

India's Top Money Market Funds:

Money market fund performances are not stable as they are associated with risks, investor should ensure before choosing any investment fund. Here is the list of well performing money market funds.

  • Aditya Birla Sun Life Money Manager Fund
  • HDFC Money Market Fund
  • Franklin India Savings Fund
  • SBI Savings Fund
  • L&T Money Market Fund

Bottom Line:

Money Market Funds are ideal for the investors who wishes to get good returns and can tolerate higher risks, and for short term plan investors as the maturity period is 1 year or for the investors who look for short-term cash surplus.