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Business News/ Money / Personal Finance/  Mutual funds: What are money market funds and why should you invest in them?
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Mutual funds: What are money market funds and why should you invest in them?

These mutual funds are advisable for investors who are looking for short term investment, say between three months to one year

Money market is an exchange where trade of cash and cash equivalent happensPremium
Money market is an exchange where trade of cash and cash equivalent happens

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 Rs 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 (Rs 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.

 

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Published: 05 Sep 2023, 09:13 AM IST
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