Top 5 Best Money Market Funds to Invest

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Money market funds are financial instruments having a short maturity period of up to 1 year. These funds are debt securities offering a fixed rate of interest and hence, are used as tools for raising capital by the issuer. Money markets are designed to provide and accept bulk orders. Thus, retail investors who have enough capital can directly participate in money markets, while individual investors must invest in debt mutual funds that invest in money markets in order to invest in this market.

Read more about money market funds here

5 Best Money Market Funds to Invest

Depending upon their 1-year returns, given below are the best money market funds to invest –

Data as on 26 May 2020; Source: Value Research

1. L&T Money Market Fund

Data as on 26 May 2020; Source: Value Research

For instance, if you had invested a sum of ₹55,000 for a period of 5 years at a CAGR of 8.62% (as on 26 May 2020), your corpus at the end of your investment (which would be today) would have been ₹75,599.51

• The fund is an open-ended scheme investing in money market instruments
• The fund aims to generate regular income through investing in a portfolio comprising substantially of money market instruments
• Out of the fund’s total assets, 97.3% have been invested in debt securities at a very low risk

2. Franklin Savings Fund

Data as on 26 May 2020; Source: Value Research

For instance, if you had invested a sum of ₹70,000 for a period of 5 years at a CAGR of 8.14% (as on 26 May 2020), your corpus at the end of your investment (which would be today) would have been ₹1,03,521.34

• The fund seeks to manage interest risk by investing in money market instruments that have a shorter maturity period
• Fund’s 99.79% of total assets have been invested in debt, out of which 4.26% is invested in government securities and 95.53% in very low risk securities

3. SBI Savings Direct Fund

Data as on 26 May 2020; Source: Value Research

For instance, if you had invested a sum of ₹90,000 for a period of 5 years at a CAGR of 8.16% (as on 26 May 2020), your corpus at the end of your investment (which would be today) would have been ₹1,33,221.99

• The debt fund aims to provide an opportunity for investors to invest in money market instruments
• The fund managers focus on investing in funds that offer stable returns through a portfolio of money market instruments seeking to capture the term and credit spreads
• Out of the total investments, the fund has invested 97.83% in debt and securities with very low risk

4. ABSL Money Manager Fund

Data as on 26 May 2020; Source: Value Research

For instance, if you had invested a sum of ₹75,000 for a period of 5 years at a CAGR of 7.86% (as on 26 May 2020), your corpus at the end of your investment (which would be today) would have been ₹1,09,487.2

• The scheme aims to generate regular income through investing in a portfolio comprising of money market instruments
• The fund has 99.33% of its investments in A1+ securities with very low risk
• ABSL Money Market fund is suitable for investors looking to invest for a short term at lower risk

5. Nippon India Money Market Fund

Data as on 26 May 2020; Source: Value Research

For instance, if you had invested a sum of ₹85,000 for a period of 5 years at a CAGR of 7.73% (as on 26 May 2020), your corpus at the end of your investment (which would be today) would have been ₹1,23,339.51

• The fund aims to generate optimal returns that are consistent with moderate levels of risk and liquidity through investing in money market instruments
• The fund has 108.2% investment in debt securities, out of which 20% have been invested in government securities and the remaining 88.22% is invested in funds that involve very less risk
• The fund is considered suitable for investors with a short investment horizon
• Nippon India Money Market Fund acts as an alternative to bank accounts and/or fixed deposits for investors

Advantages of Investing in Money Market Funds

Money market funds are considered one of the safest investment options because of their allocation of assets to only high rated instruments. Here’s why you should invest in them-

• One of the most crucial functions of the money market is to maintain liquidity in the economy. Some of the money market instruments are an important part of the monetary policy framework and are used by RBI to get liquidity in the market within the required range

• Money markets allow investors to withdraw their funds on very short notice. Hence, it is advised that institutions borrow funds from the market instead of borrowing from banks, as the process is hassle-free and the interest rate is also lower than that of commercial loans

• Money Market makes it easier for investors to dispose of their surplus funds while retaining their liquid nature and offering significant profits on the same. It facilitates investors’ (such as banks, non-financial corporations, state and local government) savings into investment channels

• The money market enables financial mobility to investors by allowing easy transfer of funds from one sector to another, thereby ensuring transparency in the system. High financial mobility is important for the overall growth of the economy as it promotes industrial and commercial development
• A developed money market helps RBI in efficiently implementing monetary policies. Transactions in the money market affect short term interest rate which gives an overview of the current monetary and banking state of the country. This further helps RBI in formulating the future monetary policy, deciding long term interest rates, and creating suitable banking policy

How to Invest in Money Market Funds

You can invest in money market funds through either of the following ways-

• Offline mode of investing– If you are not confident of your knowledge, you may choose to invest through a broker. However, investing in a fund through a broker will make you eligible for investments through regular plans that offer different returns and varied expenses in investment. If you wish to invest in the fund independently, you must visit the nearest branch of the AMC of your fund. Don’t forget to carry the following documents-
  • Identity Proof (Aadhar Card)
  • Canceled cheque
  • Passport size photos (around 4-5)
  • PAN Card
  • KYC documents (for KYC verification)
• Online mode of investing– If you do not wish to add on to your expense of commissions or brokerage, you may visit online investment platforms such as Paisabazaar.com wherein you can choose from and compare more than 1,700 funds- all in one place, instead of following the long procedure of visiting the website of each AMC and then choosing from them. Here, you can select the fund in which you want to invest, look at the details and compare similar schemes as well as use SIP Calculator or Lumpsum Calculator to estimate the future value of your investment

Frequently Asked Questions

Ques. What are money market mutual funds?

Ans. Money market funds invest in assets of high-rated quality such as short term instruments, cash, and cash equivalents.
Ques. Are money market mutual funds safe?

Ans. Yes, money market mutual funds are considered one of the safest modes of investment because of their allocation of assets to the instruments of high-rated quality, which makes them offer predictable risk-free returns.

Ques. What are the various types of money market funds?

Ans. Money markets funds invest in Certificates of Deposit, Treasury Bills, Call money, Banker’s acceptance, Repurchase agreement, etc.

Ques. What is the difference between money market funds and liquid funds?

Ans. Money market funds and liquid funds are both types of debt funds and involve a little difference in terms of their maturity periods. Money market funds have a maturity period of around one year, while liquid funds mature in 91 days or lower.