MONEY MARKET FUNDS

The money market is a subset of the financial markets that deals with relatively short-term
fixed income securities. Money market securities have a maturation period of just under one
year. Money market participants are often banks and other financial institutions, institutional
investors, corporations, and so on. A money market fund is a type of mutual fund that deals in
short-term, highly liquid assets. These instruments include cash, cash equivalents, and short-
term debt-based assets having a high creditworthiness. Money market funds are designed to
provide investors with high liquidity at a low risk. Money market mutual funds are another
name for money market funds.

History of money market funds

Money market funds were created and launched in the United States in the early 1970s. They
quickly gained popularity because they provided a simple option for investors to acquire a
pool of assets that, in general, provided greater returns than a normal interest-bearing bank
account. It was established in India in April 1991 to give a new short-term route for investors
and to make money market instruments more accessible to consumers

How money market fund works?

Money market funds function similarly to mutual funds. They sell convertible shares to
investors and are required to abide by the rules imposed by financial regulatory authorities.
A money market fund may invest in the debt-based financial instruments listed below:

Bankers’ acceptance is short-term debt guaranteed by a commercial bank, Certificate of

deposits are savings certificate with short-term maturity issued by banks, Commercial papers
is a type of unsecured corporate debt that is issued for a limited period of time and
Repurchase agreement (Repo) are short-term government securities.

Since the returns on these instruments are determined by market interest rates, the overall
returns on money market funds are determined by interest rates.
Benefits
In addition to bank money market accounts, ultrashort bond funds, and enhanced cash funds,
money market mutual funds compete with other investment choices. These investment
choices may invest in a broader range of assets, and they may also attempt to earn better
returns than traditional investments do.

An investment in a money market fund provides investors with a safe way to invest in highly
liquid, cash-equivalent debt-based assets that are secure and highly liquid, utilising lower
investment amounts. Money market funds are classified as low-risk, low-return investments
in the area of mutual funds. Many investors choose to put large sums of money in such funds
for the short term. Money market funds, on the other hand, are not appropriate for long-term
investing goals such as retirement planning. This is due to the fact that they do not provide
significant capital appreciation.

Money market funds today

Money market funds are becoming one of the most important cornerstones of today's capital
markets. They provide clients with a diversified, professionally managed portfolio with high
daily liquidity. Many investors utilise money market funds as a location to lodge their capital
until they decide on other assets or for short-term financial requirements. The interest rates
offered on the different assets that comprise a money market fund's portfolio are the primary
elements that influence the fund's performance. Looking at historical data can give adequate
information about how money market returns have performed.
Some of the schemes of the money market funds as on 26 August 2021 are analyzed here,
The Aditya Birla Sun Life Money Manager Fund – Direct Plan - Growth gets first rank in the
CRISIL Rank (the rating agency ranks to mutual funds on a scale of 1 to 5) with 4.21%
growth rate in one year with AUM (Assets Under Management) of Rs.15,258.10, Kotak
Money Market – Direct Plan - Growth gets second rank in CRISIL Rank with 4% growth rate
in one year with the AUM of Rs.11,191.73, L&T Money Market Fund – Direct Plan –
Growth gets third rank in CRISIL Rank with 3.52% growth rate in one year with the AUM of
Rs.1,066.48, UTI Money Market Fund – Direct Plan – Growth gets forth rank in CRISIL
Rank with 4.05% growth rate in one year with the AUM of Rs.9,391.09, Franklin India
Savings Fund – Direct Plan – Growth gets fifth rank in CRISIL Rank with 3.87% growth rate
in one year with the AUM of Rs.1,020.44.
As seen above Money market mutual funds are the best place to invest money for the
investors who are searching for the short-term investment and to earn better returns than the
bank deposits and accounts as money market mutual funds invest in money market
instruments with maturity no longer than a year, money market mutual funds has very lesser
risk of losses as compared to the stock market so, it is the right place to invest for the low risk
profile investors.
- AKASH GOWDA C K
ARPITHA K U
GAGAN DEEP M