Guide to investing in money market funds

guide to invest in money market fund
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Anyone looking to grow their wealth through mutual funds must first understand the different type of mutual fund schemes available. Among these options, money market funds stand out as a reliable choice, especially for those seeking lower risk and relatively steady returns. In this comprehensive guide to investing in money market funds, we will look at the features, benefits, and key considerations before making an investment decision.

  • Table of contents
  1. What are money market funds?
  2. Guide to invest in money market funds
  3. Understanding the features and benefits of money market funds
  4. Who should consider money market funds and why
  5. Bajaj Finserv Money Market Fund
  6. FAQ

What are money market funds?

Money market funds belong to the category of mutual funds that focus on short-term, high-quality debt instruments. These financial instruments encompass Treasury Bills, Certificates of Deposit (CDs), Commercial Paper (CPs), and various other money market instruments issued by governments, banks, and corporations. Thus, the main aim of money market funds is to offer investors a relatively stable return potential and high liquidity.

Guide to investing in money market funds

Investing in money market funds is a straightforward process. Here's a step-by-step guide:

KYC compliance: Ensure that you are KYC (Know Your Customer) compliant by submitting the necessary documents to a registered KYC registration agency.
Choose a fund: Research various money market funds and select the one that aligns with your financial goals and risk tolerance.
Fill out application form: Obtain the fund's application form from the asset management company or mutual fund distributors. Fill it out with accurate details.
Nomination: Nominate a beneficiary or opt out of nomination are two options available. Consider nominating a beneficiary for your investment to ensure a smooth transfer of funds in case of any unfortunate event.
Investment amount: Decide on the amount you wish to invest in the fund and make the payment through check, demand draft, or online transfer.
Monitor and review: Regularly monitor the performance of your money market fund and review its alignment with your financial goals. You can seek the advice of a financial expert to make a sound decision.

Understanding the features and benefits of money market funds

Low Risk: Money market funds are considered one amongst the low risk investment options within the mutual fund categories. This is primarily due to their short-term nature and investments in high-quality, low-risk debt instruments.
Liquidity: These funds offer high liquidity, allowing investors to redeem their investments quickly, usually within one to three business days. This makes them suitable choice for emergency funds or short-term financial goals.
Professional management: Managed by professional fund managers, money market funds undergo active market monitoring, and investment decisions are made on your behalf with the goal of generating a relatively better return potential.
Relatively better return potential: While money market funds are not designed for high returns, they do provide relatively better return potential than traditional savings accounts or fixed deposits. Thus, money market funds strive to strike a balance between relative stability and moderate growth.
Tax implications: Investing in money market funds leads to taxable gains. Money market funds are treated like debt funds for taxation. Thus, the gains from money market funds are subject to taxation as per the investor's income tax slab.

It is essential to bear in mind that yields from money market funds can fluctuate based on the prevailing market conditions. Therefore, it is wise to assess the creditworthiness of the underlying assets. Funds comprising predominantly top-rated securities might provide increased stability. The proficiency and experience of the fund manager are also critical factors influencing the fund's performance. Prior to making any decisions, investors should thoroughly scrutinise the credit quality and the fund manager's expertise, among other relevant aspects. Seeking advice from financial professionals is always advisable.

Who should consider money market funds and why

You should primarily consider money market funds if you are an investor who is looking for:

  • A conservative investment approach with low risk, tailored to a 6-12 months investment horizon for parking your surplus funds.
  • A liquid investment offering easy redemption options, providing flexibility as per individual needs for your emergency fund.
  • A chance to enhance your investment portfolio's diversity, effectively mitigating overall risk.
  • An affordable fixed-income investment alternative with reasonably low costs to help you with your short-term goals.

Bajaj Finserv Money Market Fund

The recently launched Bajaj Finserv Money Market Fund emphasizes on a balance between safety, liquidity, and potential returns across a diverse range of investments. The fund management team actively monitors interest rate movements by closely observing key parameters of the Indian economy and keeping track of global market developments. This fund is designed to cater to the specific needs and preferences of investors seeking a comprehensive investment strategy. The aim of this scheme is to generate potentially consistent income for investors by building a diverse portfolio of money market instruments.

Money market funds can be a valuable addition to your investment portfolio, providing stability, liquidity, and relatively better return potential. However, it is crucial to consider your financial goals, risk appetite, and consult with a financial advisor before making any investment decisions. Remember, while money market funds offer low risk investment option, every investment carries some inherent risk, and it's essential to diversify your investments for a well-rounded financial strategy.


How do changing interest rates affect money market funds?

Interest rates tends to have a direct impact on these funds. With any increase in the rate of interest, returns on money market funds also increase and vice versa. Investors are advised to seek assistance from their financial advisors while making any changes to their asset allocation pertaining to money market funds.

Can money market funds be used to park emergency funds?

Money market funds have liquidity and are also relatively stable. This makes money market fund a suitable option for emergency funds. However, it is advisable that investors evaluate factors such as financial goals and accessibility needs before using money market funds for this objective.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.