Money Market Fund - Meaning, Benefits, How it Works, Top Performing Fund & Calculation
  • Personal
  • Business
  • Corporate
  • Private Banking
  • Privy League
  • NRI Services
  • Investors
  • Personal
  • Business
  • Corporate
  • Private Banking
  • Privy League
  • NRI Services
  • Investors

Money Market Mutual Funds (MMMFs) simplify investing, adding stability and liquidity to diverse portfolios. Today, we will reveal the simple nature of MMMFs, highlighting their features and advantages. Understanding market money isn't just about financial strategy; it's a practical step to optimise your investments. Explore the simplicity and practical advantages of these types of funds now!

What is a Money Market Fund?

A money market fund, categorised as a mutual fund, specialises in highly liquid assets like cash and top-rated short-term debt securities. These securities have a maturity period of up to one year, contributing to the fund's low volatility. Investors acquire units or shares through mutual fund companies or brokers, often requiring a minimum initial investment.

These funds carry an expense ratio, a percentage covering administrative costs. Known for minimal credit risk and short maturities, these funds play a vital role in the broader financial market. Plus, they offer a stable and low-risk investment option for individuals seeking liquidity and steady returns.

Advantages of Money Market Mutual Funds

  • Liquidity: The liquidity offers quick access to funds, making them ideal for short-term financial goals and emergencies. This ensures investors can meet their liquidity needs without the complexities associated with other investment options.
  • Safety and Stability: One of the key advantages is the investment in low-risk securities. This approach prioritises capital preservation, safeguarding the investor's principal amount.
  • Professional Management: With Money Market Mutual Funds, investors benefit from professional management by experienced fund managers. The professional oversight enhances their fund management

How do Money Market Mutual Funds work?

The MMMFs operate similarly to conventional mutual funds. Investors purchase redeemable units or shares, adhering to regulatory guidelines set by authorities like the Securities and Exchange Board of India (SEBI).

These instruments offer returns based on prevailing market interest rates, thereby influencing the overall returns of MMMFs. In essence, these funds prioritise liquidity and stability by investing in low-risk, short-term securities. This operational simplicity, coupled with regulatory compliance, makes MMMFs an accessible and secure choice for investors seeking stability and modest returns in the market money.

Top Money Market Mutual Funds

Here is a list of top-performing money market mutual funds.

Scheme Name Fund Size (in Rs. Crs) NAV Exit Load* 1Y 2Y
Aditya Birla Sun Life Money Manager Fund 15,103 324.99 Nil 7.34% 5.74%
DSP Savings Fund 4,488 46.52 Nil 7.05% 5.15%
HDFC Money Market Fund 17,088 5,025.99 Nil 7.18% 5.62%
Kotak Money Market Fund 15,748 3,946.55 Nil 7.20% 5.70%
Tata Money Market Fund 13,608% 4,147.97 Nil 7.26% 5.68%

*Report as on 6 October 2023

Money Market Funds Returns Calculator

The Money Market Funds Returns Calculator is a tool for investors. Follow these steps to utilise it effectively:

  • Enter your investment amount.
  • Input the expected interest rate on the basis of the historical rate of the Money Market Mutual Fund.
  • Enter the investment period or duration.

The calculator will generate the potential returns, aiding in informed investment decisions.

Read Also : हाइब्रिड म्यूचुअल फंड क्या है ?

Who Should Invest in Money Market Mutual Funds?

Money Market Mutual Funds suit investors looking for low-risk and short investment options. Ideal for those with idle cash in savings accounts, these funds invest in money market instruments. This makes them a pragmatic choice for individuals aiming for better returns without compromising stability.

Risks and Considerations in Money Market Mutual Funds

  • Interest Rate Risk: Changing interest rates directly influence Money Market Mutual Fund returns. To mitigate this risk, consider diversifying your investment portfolio and opting for short-term MMMFs.
  • Credit Risk: Assess the creditworthiness of the fund issuers. Diversification plays a crucial role in managing credit risk effectively.
  • Market Risk: Understand potential market fluctuations and navigate them by staying informed about market trends and adjusting your MMMF strategy accordingly.

Performance and Returns

The historical performance of Money Market Mutual Funds is a key consideration for investors seeking stability. Evaluating returns is vital, allowing comparison with alternative investment options. MMMFs exhibit consistency due to their focus on short-term, low-risk instruments.

The performance is influenced by prevailing interest rates and economic conditions. Plus, historical performance analysis aids in understanding their resilience across different market scenarios. In the spectrum of investment choices, MMMFs carve a niche for those who value stability and liquidity.

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

Frequently Asked Questions

Q: Which money market fund is best?

A: The best money market fund depends on your investment goals and risk tolerance.

Q: What is the safest money market fund?

A: Safety varies, but funds with high credit ratings and diversified holdings are considered safer.

Q: What is the difference between a money market fund and a mutual fund?

A: Money market funds are a type of mutual fund that focuses on short-term, low-risk securities.

Q: What types of securities do Money Market Mutual Funds invest in?

A: MMMFs typically invest in short-term, high-quality instruments like Treasury bills and commercial paper.

Q: What is the minimum investment requirement for Money Market Mutual Funds?

A: Minimum investment requirements vary; check with the specific fund for details.

Q: How is the return on Money Market Mutual Funds calculated?

A: Returns are influenced by interest rates and the performance of the underlying securities.

Q: How do I choose the right Money Market Mutual Fund for my investment goals?

A: Consider your financial goals, risk tolerance, and the fund's historical performance to make an informed choice.

Latest Comments

Leave a Comment

200 Characters

Read Next

Here’s a case for investing in International Funds

Portfolio diversification has been a prudent investment strategy.


7 rules to keep in mind while investing for your children

Every parent wants to build a secure future for their child. With the help of a good finance professional and strong financial discipline, it is easy…


Can I invest in the name of a minor?

There is probably no parent in the world who doesn't want to secure their child's future. 

Load More

Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.