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Money Market Mutual Funds

Money Market Funds invest in high-quality short-term debt instruments, cash, and cash equivalents. Owing its short duration maturities, these funds are highly liquid for an investor.

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List of Money Market Mutual Funds in 2022

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Fund name
AUM
1Y CAGR
3Y CAGR
Till Date CAGR
Aditya_Birla_Fav_icon-logo
Aditya Birla Sun Life Money Manager Fund (G)

12059.79 Cr

3.7%

5.4%

6.8%

Aditya_Birla_Fav_icon-logo
Aditya Birla Sun Life Money Manager Fund Plan Retail (G)

12059.79 Cr

3.7%

5.4%

7.1%

reliance-nippon-life-logo
Nippon India Money Market Fund (G)

9349.905 Cr

3.8%

5.2%

7.4%

icici-prudential-logo
ICICI Prudential Money Market Fund Retail (G)

10578.223 Cr

7.2%

7%

6.4%

icici-prudential-logo
ICICI Prudential Money Market Fund (G)

10578.223 Cr

3.6%

5.1%

7.1%

hdfc-logo
HDFC Money Market fund (G)

12589.647 Cr

3.6%

5.3%

7%

uti-logo
UTI Money Market Fund (G)

8353.093 Cr

3.8%

5.2%

7.3%

uti-logo
UTI Money Market Fund Discontinued (G)

8353.093 Cr

3.3%

4.6%

7.2%

kotak-mahindra-logo
Kotak Money Market fund (G)

14149.301 Cr

3.8%

5%

7%

axis-logo
Axis Money Market Fund (G)

3864.104 Cr

3.7%

-

5.1%

sbi-logo
SBI Savings Fund (G)

21179.074 Cr

3.2%

4.8%

7%

dsp-logo
DSP Savings Fund Unclaimed Dividend Beyond 3 years (G)

2438.264 Cr

-

-

-

dsp-logo
DSP Savings Fund (G)

2438.264 Cr

2.9%

4.7%

6.6%

bnp-paribas-logo
Baroda BNP Paribas Money Market Fund (G)

19.33 Cr

3.2%

4%

4%

edelweiss-logo
Edelweiss Money Market Fund Institutional (G)

317.965 Cr

2.7%

4.8%

5.1%

franklin-templeton-logo
Franklin India Savings Fund (G)

864.972 Cr

3.4%

5.1%

7.1%

dsp-logo
DSP Savings Fund Unclaimed Redemption Upto 3 years (G)

2438.264 Cr

3.8%

6.3%

6.4%

dhfl-pramerica-logo
PGIM India Money Market Fund (G)

54.521 Cr

3.2%

-

3.5%

edelweiss-logo
Edelweiss Money Market Fund (G)

317.965 Cr

2.7%

4.8%

6.3%

sundaram-logo
Sundaram Money Market fund (G)

32.078 Cr

3.5%

4.7%

5.4%

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Money Market Mutual Funds (MMMF) predominantly invest in high-quality short-term debt instruments, cash, and cash equivalents. They best suit investors who are risk-averse with an investment horizon of three months to one year. Though they do not guarantee returns, they offer a predictable return usually considered risk free return due to the high-quality

Top 5 Popular Money Market Mutual Funds to Invest

Fund NameReturns Since InceptionExpense Ratio
Aditya Birla Sun Life Money Manager Fund6.8%0.33%
HDFC Money Market fund7%0.41%
UTI Money Market Fund7.3%0.28%
Kotak Money Market fund7%0.33%
Axis Money Market Fund5.1%0.35%

What are Money Market Funds?

Money market mutual funds invest in securities that have a maturity of around one year. Hence investors use it to manage short-term cash needs. The fund invests in certificate of deposits, commercial papers, treasury bills, and repurchase agreements. The investments are generally in fixed income generating securities.

This is why these securities are called money market instruments. Money market instruments are highly liquid as they come with short maturities. They are highly secured as well, as the issuers of these instruments have a strong credit rating

Types of Money Market Securities

  1. Certificate of deposit (CD) is an instrument that allows an individual to park money in a bank for a predetermined time and rate. The amount parked in a CD cannot be withdrawn on demand, and the principal plus interest is available only upon maturity. RBI regulates the interest rates of CDs. It is a term deposit or fixed deposit being a fixed income generating instrument.
  2. Commercial Paper (CP) is an instrument that is issued by high rated companies and institutions. They are unsecured and hence give higher returns than treasury bills. They are issued at a discount and redeemed at face value at the end of the investment horizon, which is usually around one day to 270 days.
  3. Treasury bills (T-Bills) are government securities. Due to the Central Government backing, experts consider it as a risk free investment. Hence, the return on these instruments is low if we compare it with other instruments. T-Bills have varying maturity periods ranging from 91 days up to 365 days.
  4. Repurchase Agreements (Repos) enables short term borrowing and lending by sale or purchase of debt instruments. The sale happens at a fixed price, only to be purchased back at a higher price. The difference in both the prices is usually the cost of investment or the repo rate.

Who should invest in Money Market Mutual Funds?

Individuals who have surplus cash in their saving account or wish to invest in a fixed deposit. They need stable growth rates with a horizon of one year can consider money market mutual funds as an option to invest. The returns from these funds may not be guaranteed but is often predictable. The return is also higher than bank deposits, hence allowing an investor to make money from the surplus cash.

Money market mutual funds do not suit all investors. There are certain things an investor has to consider before picking these funds to park the surplus money.

Things to Consider When Investing in Money Market Funds

  • Risk: In India Money market is subject to interest rate risk, default risk, credit risk, and reinvestment risk. The interest rate might go up, and the price or asset value of the underlying security may go down or vice versa. The issuers of these securities might default on the payments. The fund manager might invest in risky securities for a higher return and asset. Hence, MMMF is not entirely risk-free.
  • Costs: The investment in MMMF comes with a cost. The fund house charge an expenses ratio on the NAV. SEBI has capped the expense ratio for the fund house to protect the interest of investors.
  • Investment horizon: The investment horizon for mutual funds varies with the type. MMMF is ideal for investors with a horizon of one year as the average maturity of all the securities in the fund is around one year. For investors with a horizon of more than a year can look at other debt funds
  • Goals: It is essential to align financial goals with investments. MMMFs can be the right choice for a goal of 1 year
  • Tax: The tax on capital gains depends on the holding period of the investment. For any investment redeemed before 36 months of investing, STCG tax is levied. STCG tax is based on the tax slab of the investor. LTCG tax is levied if the investing period exceeds 36 months, and the rate of tax is 20% after indexation.
  • Expenses: Typically, Money Market funds might charge an exit load if the money is withdrawn inside a week. With online access to mutual funds, small investors are taking advantage of investing in money market funds for the short term instead of holding cash in a savings bank account 
    As money market funds do not earn very high returns, the expense ratio of the fund plays a very vital role in determining the earnings. Ideally, investing in lower expense ratio funds would be most efficient.
  • Taxation: In India Money Market instruments taxation is the same as that of debt funds. The tax rate depends on the duration for which an investor holds the investment. 
    For an investment horizon of less than three years, the short term capital gains (STCG) arises. The tax on STCG is as per the applicable income tax slab of the investor. While for investments beyond three years, Long Term Capital Gains (LTCG) arises. And the applicable tax rate is 20% with indexation

Frequently Asked Questions

Are money market mutual funds safe?

Yes, Money Market Mutual Funds are relatively safer. These funds mainly invest in high-quality short-term debt instruments that are relatively of low risk. In India Money market is subject to interest rate risk, default risk, credit risk, and reinvestment risk. The interest rate might go up, and the price or asset value of the underlying security may go down or vice versa. The issuers of these securities might default on the payments. The fund manager might invest in risky securities for a higher return and asset. Hence, MMMF is not entirely risk-free.

What is the average return on money market funds?

The average return on money market funds based on the top performing funds in the last 3 years is 5% to 7%. Fund managers may decide to invest in securities with higher risk for higher returns. However, before investing in a money market fund, an investor must consider other factors as well. Such factors are consistency in delivering returns, relative size i.e. AUM, track record for analysis, past performance of the fund managers, expense ratio, taxation, and so on. The average returns of any specific fund must be the sole criteria for investing.

What is the advantage of a money market account?

The main advantage of a money market account is generating higher returns compared to a savings account or fixed deposit. The investment horizon is short and does not exceed 1 year. The risk of the investment is reduced by investing in high-quality instruments that tend to be more stable with market fluctuation. The return from these funds, though not entirely risk-free, is predictable. Independent agencies rate money market mutual funds, making it easy for investors to pick funds. Investors with surplus money can invest in these funds for short term needs.

What are the disadvantages of a money market account?

In India Money market is subject to interest rate risk, default risk, credit risk, and reinvestment risk. The interest rate might go up, and the price or asset value of the underlying security may go down or vice versa. The issuers of these securities might default on the payments. The fund manager might invest in risky securities for a higher return and asset. Hence, MMMF is not entirely risk-free. The investment in MMMF comes with a cost. The fund house charge an expenses ratio on the NAV. SEBI has capped the expense ratio for the fund house to protect the interest of investors.

What is the minimum balance for a money market account?

The minimum balance for a money market account is much higher than a normal savings account. The minimum balance should be maintained above Rs 100,000 to take advantage of high interest rate. Also keeping the balance above the minimum required will benefit from waving the monthly fees.

What is the difference between a money market account and a money market fund?

A money market account is a type of bank account, owned and personally managed by the account holder. While a money market fund is a type of investment where the asset is pooled by multiple investors and managed only by the fund manager. Money market funds were introduced to overcome the strict requirements of owning a personal money market account. These funds are an investment vehicle to encourage the retail investors to invest in the money market in India.

Is money market a good idea?

Money market is a good idea for investors who have surplus cash in their savings account and will be able to maintain a minimum balance required by the account. Money market generates higher returns than savings account or fixed deposit, yet, it comes with relatively higher risk and returns are not guaranteed. Money market mutual funds do not suit all investors. There are certain things an investor has to consider before picking these funds to park the surplus money.

Can you lose money in a money market fund?

Although it seems impossible to lose money in a money market fund considering the quality of securities and the investment duration, you may not generate from the fund the expected returns since they are not guaranteed. You can lose money if the fund is experiencing high monthly fees against low interest along with a decline if the asset value of the underlying security.

What is the benchmark for money market fund?

The benchmark for money market funds is based on the interest rate of the money market. It should be evaluated against the quality of securities, the expected interest rates and duration of the investment

What are the risks of a money market fund?

In India Money market is subject to interest rate risk, default risk, credit risk, and reinvestment risk. The interest rate might go up, and the price or asset value of the underlying security may go down or vice versa. The issuers of these securities might default on the payments. The fund manager might invest in risky securities for a higher return and asset. Hence, MMMF is not entirely risk-free.

Do money market funds pay dividends?

Yes, money market funds pay dividends in the form of earnings. These dividends are not eligible for tax deduction. An investor must pay the income tax on such earnings in the form of dividends.

How fast can you get your money out of a money market fund?

You get your money out of a money market fund in a very short time. Although this will be subject to an exit load. The process of redeeming the investment may not take longer than one day to few days. Within 2 days to 4 days the redemption value will be credited to your registered savings bank account.

Are money market funds taxable?

Yes, the returns earned from a money market fund is taxable. The tax on capital gains depends on the holding period of the investment. For any investment redeemed before 36 months of investing, STCG tax is levied. STCG tax is based on the tax slab of the investor. LTCG tax is levied if the investing period exceeds 36 months, and the rate of tax is 20% after indexation.

Who regulates money market in India?

Money market in India is regulated by the Reserve Bank of India. RBI is the biggest regulator in the market and powers over all Indian banks with the right to set structures and guidelines for all types of investment vehicles.

What is difference between money market and share?

Money markets are safer than shares (stocks) as money markets are selective to high-quality securities and based on short duration, on the other hand, stocks are more volatile and the asset value can experience a strong increase or decline. Returns from the money market are less than stocks but the risk of the investment is much less compared to the stock market.

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