Money market funds are debt mutual funds that invest in highly liquid, or money market instruments, in order to deliver returns that are usually better than those of term deposits.
These funds are ideal for the investors who are looking forward to earning fixed returns in a short duration of time i.e., between three months to one year.
These funds don’t incur losses if investors stay invested for longer than six months. These schemes give better returns than those of term deposits.
There are 23 schemes in this category with total assets under management (AUMs) of ₹1,49,582 crore, as on July 31, reveals the AMFI data. Some of the popular money market funds include
Some of the popular money market funds include SBI Savings Fund, HDFC Money Market Fund, ICICI Prudential Money Market Fund, Tata Money Market Fund and ABSL Money Manager Fund (see table below).
| Money market funds | AUMs ( ₹crore) |
| SBI Savings Fund | 23,142.44 |
| Tata Money Market Fund | 12,977.56 |
| Kotak Money Market Fund | 17,680.13 |
| ICICI Prudential Money Market Fund | 17,119.95 |
| HDFC Money Market Fund | 19,322.52 |
| ABSL Money Manager Fund | 15,665.99 |
(Source AMFI, data as on Aug 9)
What are money market instruments?
Money market is, in fact, an exchange where trade of cash and cash equivalents happens. A slew of money market instruments includes certificates of deposit, treasury bills, commercial papers and repurchase agreements. Here we explain a brief description of these instruments:
Certificates of deposit: They are a form of term deposit which do not have the option of early redemption. They are different from FD in a way that they can be negotiated specifically between the two parties unlike the case of fixed deposits.
Treasury bills: These are issued by the government to raise funds for a period up to one year. They are quite safe since they carry a sovereign guarantee. As a result, their returns are lower.
Commercial paper: These are short-term unsecured promissory notes issued by organisations that have a high credit rating. These papers are issued at a discount but redemptions are done on a face value.
Repurchase agreement: These agreements are entered into between Reserve Bank and commercial banks, and also between two banks. Under a repurchase agreement, the borrower temporarily lends securities to the lender only to buy them back at a predetermined price.
