What is money market mutual funds It is types and benefits

If you are looking for a short-term investment tool with a diverse portfolio, money market mutual funds are the way to go. They are best for people with idle cash in their savings account. You can use the money to accrue higher returns compared to a savings account. Read on to know more about money market mutual funds.

What is Money Market Fund?

Money market mutual funds is a short-term investment with high credit ratings. These open-end debt type mutual funds have an average maturity of a year. These funds invest in high-quality liquid instruments like commercial papers and treasury bills. Money market mutual funds are therefore among the best forms of mutual funds investment.

Types of Money Market Mutual Funds

They are broadly classified as-

• Institutional Money Market Mutual Funds- They includes large sums that the government, large businesses, and institutional investors hold.
• Institutional Money Market Mutual Funds- They includes treasury bills, short-term debts, tax-free bonds etc. that can temporarily store money.
• Certificate of Deposit- Selected banks offer these for a fixed period. They are like fixed deposits. However, unlike fixed deposits, under no circumstances can you withdraw before the expiry.
• Commercial Paper- Companies with a high credit rating issue them. They are unsecured instruments that are issued at discounts. You sell them at face value and earn the difference. They are also famous as promissory notes.
• Treasury Bills- The Government of India issues them for a year after which they reach maturity. They are considered to be very safe. The rate of return is low.
• Repurchase Agreements- It is a sales and purchase agreement under which the Reserve Bank of India lends money to commercial banks.

Benefits of Money Market Mutual Funds

• You can withdraw without incurring penalties.
• The redemption process is straightforward. You can redeem either online or through your phone.
• The process of setting a money market fund is natural. It is done using a Know Your Customer- compliant bank account.
• They are considered equivalent to cash.
• Money market funds are an extremely safe form of investment.
• They are a great form of investment regarding liquidity.
• The returns are higher than that from a savings account.

Now that you know precisely what is money market funds, you may have guessed that they work best for shorter terms ranging from 3 months to 12 months. For longer terms, money market funds may not be a wise option. If however, you are looking to reap investment benefits from the extra cash in your saving account without losing liquidity, this is the perfect investment for you.