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Benefits of Investing in Money Market Funds

Want to earn high returns from mutual fund investment? Invest in money market funds, which has high returns potential. Read further to know more about how it would be beneficial for you.

What is a Money Market Fund (MMF)?

Featuring in the debt mutual funds category, money market fund is open-ended with high return potential. Historically, it has proven to be one of the best investment options for short-term savings. The maturity period is usually not more than one year.

Types of Money Market Funds

There are many types of high liquidity instruments under MMF, including:

  • 1. Treasury Bills or T-bills:

    These are short-term government bonds and securities. The Reserve Bank of India generally issues treasury bills at regular intervals at discounted rates. You can redeem them at face value at the time of maturity.

  • 2. Repurchase agreements:

    These are released to control the supply of money. It involves the sale of a deal at a price and purchasing the same at a higher price in future.

  • 3. Commercial papers:

    Issued by corporates, primary dealers and all India financial institutes commercial papers are unsecured financial instruments. These papers are issued in the form of promissory notes.

  • 4. Certificates of deposit:

    It is an agreement where you deposit money in a bank for a fixed period. The longer the deposit period, the higher will be the interest rate commitment.

Who should invest in money market fund?

Money Market Fund is an ideal investment if:

  • You have savings in a bank account and want to utilise it for investment.

  • You are looking for a low-risk investment option with high returns potential.

  • You are a corporate or a retail investor.

Benefits of Money Market Funds:

  • Low risk:

    If you have a low-risk appetite, you can choose money market fund investment. The Asset Management Company (AMC) ensures that the risks are limited, and investor’s interests are secured. Investors should opt for this type of financial instrument rather than opening a savings account with a bank.

  • Returns:

    In comparison to other cash equivalents, money market fund offers high returns. However, it depends on the Net Asset Value (NAV) that keeps on changing with the rise or fall in the interest rate of the unit. If the interest rate falls, the price of the money market fund unit increases and you can get good returns.

  • Liquidity:

    In simple terms, you can usually get your money out within a few business days. Besides, it is convenient wherein you have the flexibility to withdraw your money from money market fund. This gives you easy access to cash, whenever you want.

    It is best to invest money in low-risk financial instruments instead of saving them in a bank account. However, it wouldn’t be an ideal investment tool if you aim to start a medium to long-term investment goal. Hence, it is better that you gather information about money market funds before you begin investing.