Money market mutual funds
A Money Market fund is a mutual fund that invests in the Money markets. These funds are primarily short term and are invested in short-term obligations that range anywhere from one-day to one-year. The main purpose of this fund is to not only preserve the principal amount, but also add profits by the way of dividends.
SEBI (Mutual funds) defines Money market mutual funds as "a scheme of mutual fund which has been set up with the objective of investing exclusively in money market instruments
These funds aim to provide investors with a safe investment option which comprises of cash-equivalent assets that are accessible on short notice. Money Market funds are characterized as low risk and provide relatively lower returns as compared to other higher risk options. Due to their nature, they make great options for short term investments as opposed to long term ones.
This mutual fund scheme aims to earn a margin of interest for the investor without depleting the Net Asset Value (NAV) or principal amount of the fund. Portfolios of this fund comprise of high quality instruments that are liquid and ideal for those who do not want to block their money for a specific period of time. Since the returns are not high as bank deposits with greater than one-year maturity, these funds are a better option for those who want a short-term investment solution. Individuals who are not willing to take great risk with their money can certainly benefit from Money Market Mutual Funds.
Why leave cash in your savings account when Money Market funds can give you much better and profitable returns? Use this investment method if you want to put your surplus cash to a profitable use.
As the market deteriorates, investors generally tend to exit the market by selling off their assets before they stand to make a greater loss. In crisis situations, these investment instruments are ideal as they help keep the risk lower. Money Market funds are not just for individuals. They are also utilized by large banks and governments in order to manage their short term liquidity. Mutual Fund companies can help individual investors make the most of their investment.
Safety of the money invested
Individual Investors usually prefer banks as they prefer the security it provides as compared to the lucrative returns of other options. The protection of the Indian Government is an added advantage.
On the other hand, money market mutual funds provide a security in a different way. These schemes are carefully monitored by SEBI (Securities Exchange Board of India) much like the other mutual funds. The investment is usually in financially reliable securities and the investment instruments mature in 365 days or less. A Money Market Fund portfolio comprises of several safe debt instruments such as Central government securities, State Government Bonds, Top rated debt instruments etc.
It is a fact that a savings account gives you returns that are lesser than Money Market funds. By investing in these funds you can increase your chances of deriving higher returns as compared to your savings account.
The performance of Money Market mutual funds is dependent on the interest rates that are set by the Reserve Bank of India. Market trends have an impact on the performance of these instruments and hence it is important be aware of the current interest rate environment and figure out how much advantage a money market fund would give you over your savings account.
Money Market funds are similar to Savings accounts with respect to the liquidity factor. Users can usually avail of free check-writing, electronic money transfer, facility to redeem without lock-in period etc.
What money market securities are available in India?
Money Market Mutual Funds can invest in the following security options:
- Treasury Bills (T-Bills)
- Repurchase Agreements (Repos)
- Commercial Papers
- Certificate of Deposits
Selecting a Fund
The various types of funds all invest in the same basket of securities that fall within their section (Government securities, high rated bonds etc) so the returns of a particular fund might vary slightly from the others in its section. A fund that has a lower operating cost will tend to perform better.You can judge a particular fund based on its Annual operating costs. If a mutual fund is successful, the larger amounts of capital it controls will translate into lower operating expenses for investors.
Therefore, we can conclude that money market funds are ideal options for short-term funds with respect to risk, return and liquidity. Retail investors gain the benefit of participating in Money market with Money Market mutual funds. These funds are rated before rating agencies and you must make it a point to check ratings before investing.
Tags: Mutual Funds , Kotak Securities , Kotak Securities Ltd. , Money
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