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What is a money market fund?

Money market fund is also called a liquid fund. They invest in money market instruments such as treasury bills, commercial paper and certificates of deposit with a maturity term under 91 days. They also invest in short term debt which matures in a time period under a year.

Returns from the money market fund

Money market funds give good returns, in times of high inflation. When RBI raises rates or keeps them high, Money market funds give good returns.

Why invest in Money Market Funds


These funds are extremely liquid. You can buy and sell them within a day. You are not charged an entry or an exit fee.

A Good Saving

You can keep your extra cash in a money market fund and earn higher interest than a savings bank account.


Safer than most debt funds. They invest in fixed income securities with very short maturity. Low on risk.


Dividends are tax free in your hands. The profit you make in the long term is taxed with an indexation benefit.

Types of money market funds

Money market funds come with different plans. You have the growth plans, daily dividend plans, weekly and even monthly dividend plans. Growth plans do not give you any dividends. You can also invest in direct plans which have a lower expense ratio as there are no intermediary charges.

Taxation of money market funds

Short term capital gains (gains under 3 years), are added to your taxable salary. Taxed as per income tax slab you fall under. Long term capital gains (gains over 3 years), are taxed at 20% with indexation.


Concepts & FAQ's Money Market Funds

What is a Money Market Mutual Fund?

In a Money Market Mutual Fund, the money is invested high-quality and very short maturity-based "money market instruments/securites". The maturity ranges from overnight to one year. These securities that are invested in are are deemed to be close substitutes of money.

Money market securities/instruments (Treasury bills, Call money, Commercial paper, Certificates of deposit etc.) are issued by governments, financial institutions and large corporations to raise money. The investor that buys these financial instruments/securities effectively acts as a lender who is entitled to interest at the time of repayment/maturity. Money Market Securities are traded in very high denominations. This limits access for the individual investor. The easiest way for us to gain access to the money market is with a Money Market Mutual Fund.

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Difference between "Debt Mutual Fund" and "Money Market Mutual Fund"

The very short term maturity period of Money Market Mutual Fund is its main characteristic. The investment in Money market Mutual Fund is done in money market securities (that matures in less than one year) compared to Debt Mutual Funds that invest in bonds which also gives assured returns but the maturity period is relatively higher. Money market investments are also called cash investments because of their short maturities.

For what kind of investors is Money Market Mutual Funds suitable?

Money Market Mutual Funds are a safe investment. You won't get great returns, but you won't have to worry about losing your principal. A money market mutual fund's purpose is to provide investors with a safe place to invest easily accessible cash-equivalent.

Frequently Asked Questions

What is the Money Market?

The Money Market is basically concerned with the issue and trading of securities with short term maturities or quasi-money instruments. The Instruments traded in the money-market are Treasury Bills, Certificates of Deposits (CDs), Commercial Paper (CPs), Bills of Exchange and other such instruments of short-term maturities (i.e. not exceeding 1 year with regard to the original maturity)

What is Call Money Market ?

The call money market is an integral part of the Indian Money Market, where the day-to-day surplus funds (mostly of banks) are traded. The loans are of short-term duration varying from 1 to 14 days. The money that is lent for one day in this market is known as 'Call Money', and if it exceeds one day (but less than 15 days) it is referred to as 'Notice Money'. Term Money refers to Money lent for 15 days or more in the InterBank Market.

What are different money market instruments?

Money market instruments include call money, repos, T-bills, commercial paper, certificate of deposits and collateralized borrowing and lending obligations

What is Commercial Paper (CP)?

Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.

What are T-bills?

Treasury bills are actually a class of Central Government Securities. Treasury bills, commonly referred to as T-Bills are issued by Government of India against their short term borrowing requirements with maturities ranging between 14 to 364 days. The T-Bill of the following periods are currently issued by Government/Reserve Bank of India in Primary Market : 91-day, 182-day and 364-day T-Bills. All these are issued at a discount-to-face value.

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Money Market Funds Articles

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Liquid Funds Vs Fixed Deposits

14 June 2018, Thursday    

Investors look for safety when it comes to money. It is the first thing they look for in an investment. Based on the amount of risk that investors are willing to take, they are divided into three types: Aggressive investors Moderate Investors Conservative Investors. Although there are ....

Features Of Indian Money Market

05 June 2018, Tuesday    

Money Market is a Market for trading in short-term loans between banks and financial institutions. Participants in the money market borrow and lend for the short term. The short-term instruments in the Money Market are inter-bank call money market, Treasury Bills (91 days and 364 days), Certifica ....

Want To Invest In Mutual Funds? Be An Early Bird

26 December 2017, Tuesday    

Investing in mutual funds is a great option if you want to earn handsome returns. If you are planning to invest in mutual funds, you should start as early as possible. Investing in mutual funds at a young age will give you the advantage of staying invested for long periods of time. Staying invest ....


Money Market Funds News

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BSE launches mobile app for its mutual fund platform

Thursday, May 16, 2019, 2:52 PM

Leading stock exchange BSE said it has launched 'BSE StAR MF' app to enable more participation and help mutual fund distributors process transactions faster. "BSE StAR MF mobile app supports real-time client registration and paperless transactions, creates and uploads mandate for SIPs, generates the basket of multiple orders, tracks and allows the distributor to analyse his business at his fingertips," the exchange said.

Bharat-22 ETF additional sale on Feb 14, govt to raise Rs 3,500 cr

Tuesday, February 12, 2019, 1:14 PM

The government will launch an additional offering of Bharat-22 ETF on February 14 to raise at least Rs.3,500-crore, officials said. The ETF sale would be for a single day, in which both institutional and retail investors can participate, they said. Since this is an additional on-tap offering of Bharat-22 ETF, the issue would open for a single day for both institutional and retail buyers.

Sebi looks to tighten rules for liquid funds

Wednesday, January 16, 2019, 5:54 PM

Securities and Exchange Board of India may soon tighten norms for liquid funds, the most popular mutual fund product among institutional investors with average assets under management of over Rs 6 lakh crore. Some of the proposals that the capital market regulator is considering for liquid schemes are mandatory minimum investments in short-term government bonds and stricter valuation norms, said the source.


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Money Market Funds Education

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What is a Systematic Investment Plan?

Wednesday, September 5, 2018, 5:27 PM

A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in mutual funds. SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.

What is Net Asset Value (NAV)?

Wednesday, September 5, 2018, 11:18 AM

NAV is the total value of all the mutual funds assets minus the value of all its liabilities per unit. It is the price at which you buy or sell units of a mutual fund. The assets of a mutual fund are securities like equity shares, bonds, commercial papers and debentures. Accrued interest and dividends are also the assets of the Mutual Fund.

Benefits of making a nomination for a mutual fund

Saturday, April 28, 2018, 2:37 PM

If a nomination is made for mutual fund, the funds can be easily transferred to the nominee. If something happens to the investor and the nomination is not made, it will be difficult for heirs to claim the mutual fund investment. They have to submit documents such as WILL and NOC from other heirs to get the mutual fund investments transferred to their name.



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