What is a money market fund?

The money market funds are short-term mutual funds that invest in highly-rated money market instruments. These are suitable options if you want to invest your surplus cash in short-term funds. It gives a good alternative to savings accounts as it maintains the liquidity of these funds.

What are the types of money market funds?

The money market mutual funds are an ideal investment option as they provide a high degree of short-term income through a well-diversified investment portfolio consisting of money market instruments. Investors looking to park their money for the short term can opt for these funds to get higher returns. Money market funds are of two types: Constant net asset value (CNAV) and Accumulating NAV.

Why use a money market fund for your short-term cash investment needs?

• Diversification: Money market funds allow diversification of your investment portfolio.


• Credit Risk: While the funds are issued by companies that are AAA rated, they may still face interest rate risk, credit risk, and reinvestment risk.


• Simplicity and Flexibility: These are simple investment options that grow your money within an investment horizon of 3 months to 1 year.


• Liquidity: These funds are highly liquid and can be readily converted into cash according to the investor's requirements.


• Fee: The Expense Ratio of money market funds is the only fee that the investor must bear, as there are no subscription or redemption fees when investing or redeeming units.


• Returns: These funds typically offer better returns than a savings account.