Money Market Funds: Short-Term Debt Fund Investments

What is a Money Market Fund?

Money Market Funds are subcategories of debt mutual funds. These funds invest in debt instruments with a maturity of up to one year.

Advantages of Money Market Funds

Low risks

Being debt-oriented, money market funds have low volatility risks and offer stable returns on your investment.

Short-term investment

Money market funds are suitable short-term investments, which offer relatively higher returns compared to liquid and ultra short term debt funds.

Cost-effective

Money market funds have low expense ratios and make for a cost-effective investment avenue.

Better Returns Than Savings Accounts

Money market funds offer fixed interest rates higher than traditional savings bank accounts.

Money Market Funds Returns Calculator

REGULAR INVESTMENT

SIP

Invest systematically in regular amounts and build a corpus with a disciplined investing habit.

START SIP

ONE TIME INVESTMENT

Lump sum

Invest once with the facility of lump sum investing and save at your will. Time the market correctly and earn good returns.

INVEST LUMPSUM

INVEST AMOUNT

PERIOD

RETURNS

Total Amount Invested

₹ 0

after 30 years you will get a return of

₹ 0

Disclaimer: Projections/estimations is backtested using historical data.

TARGETED RETURN VALUE

INVESTMENT PERIOD

RETURNS

Total Amount Invested

₹ 0

after 30 years you will get a return of

₹ 0

Disclaimer: Projections/estimations is backtested using historical data.

ABCD - One app to build a diversified

Invest in mutual funds online with the ABCD app and build your portfolio one click at a time.

A choice of different types of mutual fund schemes
Online investments with a fully integrated digital platform
Facility to switch, redeem and invest more from a single platform

Download our mobile app now

PLAY STORE

APP STORE

Scan the QR code to download our Mobile App

Download our mobile app now

PLAY STORE

APP STORE

Understanding Money Market Funds

Table of Contents

What are money market funds?What are the features of money market funds?Things to keep in mind when investing in money market funds What are the types of risks that money-market mutual funds face?What is the tax implication of money market funds?What are the payout options?

What are money market funds?

Money market funds are open-ended debt funds that invest in money market instruments maturing within a year. The securities in the portfolio have a wide range of maturity periods where the maximum maturity is a year. This makes money market funds a suitable short-term investment avenue.

What are the features of money market funds?

These funds have low risks and the potential to yield good returns.
There’s no capping on the maximum investment amount
No exit load is charged on redemptions
Credit risk and interest rate risk are low since the maturity of the underlying securities is low
You can choose the Systematic Transfer Plan (STP) and transfer your investment from money market funds to equity funds at regular intervals

Things to keep in mind when investing in money market funds

Money market funds are not completely risk-free. The returns are subject to market risks

Check the expense ratio of these schemes. Though the ratio is low, choose a fund which has the lowest ratio for maximum investment

Compare money market funds on their returns too. A fund with the highest return is better

What are the types of risks that money-market mutual funds face?

Credit risk

Risk of default on the debt instrument
Interest rate risk

Risk of rising interest rates, which reduces the value of debt instruments
Reinvestment risk

Risk of not getting good returns on reinvestment
Inflation risk

Risk of inflation reducing the returns from the debt fund
Liquidity risk

Risk of not being able to trade in debt instruments

What is the tax implication of money market funds?

Returns earned are taxed at your income tax slab rates
Dividends earned, if any, are taxed at your income tax slab rate

What are the payout options?

Dividend option

Earn dividends on your investment at regular intervals
Growth option

Accumulate the returns over the investment tenure and get a lump sum amount on redemption

Portfolio Track

Consolidate with Portfolio Track

Consolidate assets, liabilities
Track portfolio at fingertips

Know more

FAQs On Money Market Funds

All short-term funds and debt funds have certain similar features. A money market fund is defined by its (ideally) 1-year investment horizon, underlying investments regulated by the RBI, and low-risk nature.

Money market funds are mostly invested in treasury bills, certificates of deposit, repurchase agreements, and commercial papers.

Money market mutual funds’ risk profile is considered moderate compared to other debt funds

Money market mutual funds are good for an investment horizon of up to a year.

The things to consider before investing in money market funds are risks, historical fund performance, expense ratio, taxation, and investment horizon.