Money Market Funds

What are Money Market Funds?

A Money Market Fund (MMF) is a type of debt fund that invests in short-term debt securities. These funds lend money to companies or governments for up to one year. The main goal of an MMF is to offer a safe investment option with good returns, while also maintaining liquidity—meaning you can easily access your funds.

How Do Money Market Funds Work?

Money Market Funds are managed by fund managers who decide the best duration for lending money. Shorter lending periods typically offer lower returns, while longer durations may yield higher returns. However, the investment in these funds is considered low risk, especially when held for at least 3 to 6 months.

Features of Money Market Mutual Funds

Money Market Funds offer several key benefits that make them an attractive investment choice for many investors. 

Here are the main advantages of MMFs —

1. Low Risk: MMFs are designed to minimise risk, making them ideal for conservative investors who prioritise safety over high returns.
2. Better Returns: Typically, MMFs offer better returns than traditional bank fixed deposits of similar durations, making them a more profitable option for short-term investments.
3. Liquidity: They provide easy access to invested funds, often offering same-day or next-day liquidity. This makes them a good option for investors who need quick access to their money.
4. Diversification: MMFs invest in a range of short-term debt instruments, spreading risk across various issuers. This helps reduce the chance of a significant loss from a single source.
5. Operational Efficiency: Managing subscriptions and redemptions in MMFs is straightforward. You don’t have to continually trade like in traditional deposit-based banking options. Your money remains invested until you decide to redeem it.
6. Returns: They are actively managed, allowing them to react to market changes. This dynamic management can lead to potentially higher yields compared to traditional savings options.

Types of Money Market Funds 

Below are the different types of money market mutual funds, suitable for investors seeking safe alternatives to traditional bank accounts or deposits —

Note: The money market funds tend to fluctuate so it is a good idea to check them regularly to stay updated on their performance. 

Mirae Asset Money Market Fund

This money market mutual fund has 99.56% of its debt investments, with 9.47% in government securities, and 90.06% in low-risk securities. It is suitable for short-term investors looking for alternatives to traditional bank accounts or deposits. These funds invest in bonds with a maturity of up to one year. This aims to provide slightly higher returns than a bank account. 

Due to the complexity of debt fund classifications, these funds are typically more suited for institutional investors. Retail investors may find it more practical to invest in a liquid fund instead.

Tata Money Market Fund 

The Tata Money Market Fund invests 98.71% of its assets in debt, with 15.48% in government securities and 83.23% in low-risk securities. This fund is appropriate for both retail and institutional investors who have a short-term investment horizon and a low-risk appetite. 

The fund's CRISIL rating was upgraded from 4 to 3 in the previous quarter. It offers reasonable returns while maintaining lower interest rate risk and a high-quality portfolio. This makes it suitable for those seeking liquidity and stable short-term returns. The fund has been active for over 21 years, having launched on May 22, 2003.

ICICI Prudential Money Market Fund 

The ICICI Prudential Money Market Fund holds 101.78% in debt, with 15.13% in government securities and 86.63% in low-risk securities. Like others, it is designed for short-term investors looking for alternatives to bank deposits. The fund invests in bonds with maturities of up to one year and aims to generate slightly better returns than a traditional bank account or fixed deposit. 

Although it carries low risk, there are no guarantees of returns or principal protection. This fund is more suited to institutional investors and retail investors should consider alternatives, especially if they seek long-term wealth building. 

UTI Money Market Fund 

 Launched on November 14, 2002, this fund is classified as moderate risk and is suitable for investors looking for short-term and low-risk investments. It has 99.24% invested in debt, including 13.38% in government securities and 85.86% in low-risk securities. The minimum investment is Rs. 500 (AED 22)*, whether for a Systematic Investment Plan (SIP) or a lump sum.

Nippon India Money Market Fund 

The Nippon India Money Market Fund invests 100.5% in debt, with 14.52% in government securities and 85.98% in low-risk securities. 

This fund aims to generate optimal returns while maintaining moderate risk by investing in money market instruments like Certificate of Deposits (CDs) and Commercial Papers (CPs). 

It has a CRISIL rank of 1, reflecting its strong performance. The portfolio duration is typically between 110 to 160 days, making it suitable for investors looking for short-term income. The minimum investment amount is Rs. 500 (AED 22)*.

Bajaj Finserv Money Market Fund 

The Bajaj Finserv Money Market Fund holds 94.59% in debt, with 8.62% in government securities and 85.97% in low-risk securities. 

This open-ended debt scheme invests in money market instruments such as certificates of deposit and commercial papers. It aims to generate stable returns with low-to-moderate risk over the short term. 

The fund seeks to balance safety, liquidity and potential return. This makes it ideal for investors with a low-to-moderate risk tolerance. Investments can begin at Rs. 1,000 (AED 43)*, whether through a lump sum or SIP.

HDFC Money Market Fund 

The HDFC Money Market Fund invests 100.26% in debt, with 13.89% in government securities and 86.37% in low-risk securities. It is designed for short-term investors seeking low interest rate risk and high liquidity. 

The fund focuses on a diversified portfolio of money market instruments with maturities of less than one year. It aims to offer a well-diversified and low-risk investment option for those seeking stable returns with minimal risk.

SBI Savings Fund Direct-Growth

The SBI Savings Fund Direct Growth invests 101.42% of its assets in debt, with 16.93% in government securities and 84.49% in low-risk securities. 

Launched on January 1, 2013, this fund is suitable for short-term investors looking for a low-risk, highly liquid investment option. The minimum investment is Rs. 500 (AED 22)*.

Axis Money Market Fund 

The Axis Money Market Fund invests 97.38% in debt, with 13.47% in government securities and 83.91% in low-risk securities. The fund targets regular income through a portfolio of money market instruments with a maturity of 2-6 months. 

It focuses on investing in high-quality AAA-rated instruments to offer better risk-reward opportunities compared to traditional short-term alternatives. The fund provides high liquidity and does not charge any exit load.

Bandhan Money Manager Fund

The Bandhan Money Manager Fund invests 99.32% in debt, with 14.14% in government securities and 85.18% in low-risk securities. It is suitable for short-term investors looking for low-risk, high-liquidity options. This fund is exposed to interest rate, price, and reinvestment risks, but it still offers an opportunity for relatively stable returns. 

The tax treatment depends on the holding period, with long-term capital gains tax after three years. In addition, for holdings for less than three years, the short-term capital gains tax is calculated using the investor’s income bracket. 

* Note: The AED to INR exchange rate keeps on fluctuating. Hence, it’s better to stay updated.

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Money Market Fund vs. Money Market Account

Although their names are similar, a Money Market Fund and a Money Market Account (MMA) are quite different. 

Here’s a breakdown of the key differences —

Frequently Asked Questions