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Started your investment or still planning!

The day before today, we posted an article, in which we explained to you about, an amazing and efficient mutual fund, Hybrid Funds. They are amazing because they aim to obtain the benefits of both Equity and Debt Funds

Today, we are going to elaborate on one more interesting type of mutual fund, Money Market Funds or Money Market Mutual Funds. Money Market funds are featured for those investors, who want to invest for a very short duration with minimal risk. 

Read this blog and get to know everything about the Money Market Funds, this will help you decide your investment in Money Market Funds.

MONEY MARKET FUNDS

What are Money Market Funds?

Money Market Mutual funds are another type of Mutual Funds, also popular as Income Mutual Funds, that mainly invest in short-term debt instruments (specifically in Liquid Debt Funds), with short maturity periods and minimal credit risk. These funds give its investors, reasonable returns along with good liquidity of one year. These funds are mainly featured for achieving the short term and very short-term requirements of its investors.

Features of Money Market Funds

1. Multiple Instruments: Money Market funds do not concentrate its investment in one single type of instrument such as securities, rather it invests in multiple instruments, with different maturities, debt structure, and credit risk. Due to its multiple instrument investment features, it is considered as an ideal fund for diversification through the distribution of exposure.
2. High Liquidity: This is one of the important features of Money Market funds. They offer a high level of liquidity to its investors, which makes it an ideal platform to borrow or invest in the short term.
3. Wholesale Market: Money Market Funds are designed to accept and deal with bulk orders. The individual investors have a low amount to participate in Money Market Funds, however, if they want to be a part of this Fund, they can do their investment in debt mutual funds that invest in Money Market Funds.
4. Key Money Market Participants: Money Market Funds are not considered for individual investors, as these funds deal with bulk orders. A range of institutional investors (like companies, institutes, big firms, and more), participate in buying and selling money market instruments. The master of these funds are the financial institutes or Dealers, that focus to borrow or lend money in the short term. The duration of the short term in these funds generally varies up to 13 months.
5. Taxation: Returns generated by a money market fund are either taxable or tax-exempt, depending on the types of securities the fund invests in.

Types of Money Market Funds

1. Certificate of Deposit (CD): Certificate of Deposit, is somewhat a similar investment option like Fixed Deposits in Banks. CD is an agreement, to deposit money in banks for a fixed period, which the bank will pay to the investor, with an interest.
2. Commercial Paper (CPs): Commercial Papers are short-term debt instruments, issued by companies, that aim to generate funds for a time period of up to one year. It is generally issued by large banks or corporations, in the form of a promissory note, to meet short-term financial goals, like funding a new project and more.
3. Treasury Bills (T-bills): Treasury Bills, are a type of Money Market Funds, are generally issued by the government of India, that approach to raising funds, from a short-term debt instrument of up to 365 days. These funds are considered as the safest funds, as they are backed by the governments.
4. Repurchase Agreements (Repos): Repurchase Agreements are a kind of agreement made between banks, as well as between a bank and RBI (Reserve Bank of India), for short-term loans. It involves the sale and purchase of agreement at the same time.

Benefits of Money Market Funds

1. Diversifications: As mentioned above, Money Market Funds, invest in multiple instruments, and hold many securities that make it an ideal option for diversification through the distribution of exposure.
2. Short-term investment tenure: Money Market funds invest in short-term debt instruments, that are confined to less interest rate risk than longer-maturing bond fund investments.
3. Liquidity: Money Market Funds offer a high level of liquidity to their investors, which makes it an ideal platform to borrow or invest in the short term.
4. Stability: Money Market funds are considered as the least volatile, type of mutual fund investments.
5. Security: Money Market funds invest in short-maturity, and low-risk investments, which make them less affected by market fluctuations.

Who Should Invest in Money Market Funds? 

Money Market Funds are featured for achieving the short term and very short-term requirements of its investors. An investor who have a very short-term investment tenure, and very low-risk profile towards the volatility of the market, then I must say, they can consider their investment in Money Market funds.

Most importantly, always consult a financial planner or advisor, before starting your investments. They will help you select the best mutual fund, for your investments as per your requirement.

As of now, you are aware of the concept of Money Market Funds and its benefits, don’t bother if you have a very short investment tenure, and is afraid of market instability, invest in Money Market Funds, and enjoy the benefits of least volatile funds.

You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Best Money Market funds which have performed well in the past 3 years – 

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).