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Money Market Mutual Funds: Types, Benefits & More

Money market mutual funds invest in short-term loan securities, cash, and cash equivalents of excellent quality. Money market mutual funds are therefore detectable as risk-free or low-risk investments. These funds provide a known risk-free return rate since they invest in high-quality assets.

What is a Money Market Fund? Money Market Funds are mutual funds that have a short maturity period. Learn how to invest in a Money Market Fund with the help of this money market mutual fund meaning guidance.

What is a Money Market Fund?

Money Market Funds invest in money market instruments, as the name implies. Money market instruments are short-term securities with a one-year maturity. Borrowers issue fixed-interest-bearing securities to address short-term funding needs. The Reserve Bank of India, for example, releases treasury bonds with a duration of 365 days or fewer to control inflation.

These are one of the most common types of Debt Funds, and they are exclusive to investors who want options that can convert into cash fast and with little risk. The funds’ returns are frequently predictable and equivalent to the interest on the underlying securities, subject to certain restrictions because they invest in fixed-interest-bearing money market instruments. 

Now that you know what a money market fund is, let’s talk about how they work?

How does Money Market Funds Work?

Money market mutual funds deal with short-term cash demands. These debt funds are open-ended and exclusively deal in cash or cash equivalents. Money market securities, or money market instruments, have an average maturity of one year.

T-Bills, repurchase agreements (Repos), commercial papers, and certificates of deposit are among the high-quality liquid securities in which the fund manager invests. The primary goal of money market mutual funds is to generate interest for unitholders. The chief objective of the best money market funds is to keep the fund’s Net Asset Value (NAV) as low as possible.

Types of Money Market Instruments

The following are the most common money market instruments:

1. Certificate of Deposit (CD)

Scheduled commercial banks offer time deposits such as fixed deposits. The only difference between a CD and a savings account is that CDs cannot be demure until they reach maturity.

2. Commercial Paper (CPs)

These loans are available by credit-worthy businesses and financial institutions. Commercial papers are insecure instruments that are provided at a discounted rate and repaid at face value.

3. Treasury Bills (T-Bills)

The Indian government issues T-bills to raise funds for a short-term period of up to 365 days. Because the government manages Treasury bills, they are one of the safest assets. Treasury Bills have a low rate of return, also known as the risk-free rate when compared to other securities.

4. Repurchase Agreements (Repos)

To facilitate short-term loans, a bank and the RBI enter into a repurchase agreement. Making it between two banks is also doable.

10 Best Money Market Mutual Funds 2022

Here are the top 10 best money market mutual funds to invest in India 2022.

Fund Name Expense Ratio Minimum Rate 
Tata Money Market Fund 0.28% 5,000
Aditya Birla Sun Life Money Market Fund 0.33% 1,000
Nippon India Money Market Fund 0.25% 5,000
HDFC Money Market Fund 0.35% 5,000
UTI Money Market Fund 0.27% 10,000
Kotak Money Market Scheme 0.19% 5,000
ICICI Prudential Money Market Fund 0.32% 500
Franklin India Savings Fund 0.29% 10,000
SBI Savings Direct Fund 0.23% 500
L&T Money Market Fund 0.24% 10,000

1. Tata Money Market Fund 

To build a liquid portfolio of high-quality debt and money market instruments that would offer unitholders appropriate high returns and high liquidity. On May 22, 2003, Tata Money Market Fund, a Debt-Money Market fund, was launched.

2. Aditya Birla Sun Life Money Manager Fund 

The schemes’ main goal is to generate consistent income by investing in a mass of variable rate debt and money market instruments. Fixed-rate debt securities and money market instruments may account for a portion of the schemes’ net assets. On October 13, 2005, Aditya Birla Sun Life Money Manager Vehicle was traditional as a Debt-Money Market fund. 

3. Nippon India Money Market Fund 

The Scheme’s investing goal is to create optimal returns while maintaining a reasonable degree of risk and good liquidity. As a result, Debt and Money Market Instruments will be the primary investment vehicles. On June 16, 2005, the Nippon India Money Market Fund, a Debt-Money Market fund, was launched.

4. HDFC Money Market Fund

 It is the best money market fund for generating optimal returns while keeping high liquidity and safety. The HDFC Money Market Fund is a Debt-Money market fund that became official on November 18, 1999.

5. UTI Money Market Fund 

As a Debt-Money Market Fund, it was created on July 13, 2009. It generates the highest current income while preserving capital and provides liquidity through a diversified portfolio of short-term money market assets.

6. Kotak Money Market Scheme 

It is a Debt-Money Market fund that started on July 14, 2003. Reduce the interest rate risk associated with fixed-rate investments by focusing on floating-rate securities, money market instruments, and appropriate derivatives.

7. ICICI Prudential Money Market Fund 

The Plan’s goal will be to generate adequate returns with low risk while maintaining a high level of liquidity, mainly through money market and debt securities investments. The ICICI Prudential money market mutual fund is a Debt-Money market fund that was introduced on September 9th, 2006.

8. Franklin India Savings Fund 

On February 11, 2002, it began as one of the best money market funds. The aim is to generate income from a portfolio that includes mostly floating rate debt instruments, fixed-rate debt instruments exchanged for floating rate returns, as well as fixed-rate and money market securities.

9. SBI Direct Savings Fund 

Investors can invest in money market instruments through the debt fund. The fund managers strive to capture term and credit spreads by investing in funds that provide steady returns through a portfolio of money market instruments.

10. L&T Money Market Fund 

The fund invests in money market products and is open-ended. The fund invests mainly in money market instruments to create consistent income.

Who Can Invest In Money Market Funds?

Money Market Mutual Funds have numerous advantages. They are appropriate for investors looking for safe alternatives to fixed deposits and other liquid securities for a shorter period, specifically 6 months to a year.

If the investment horizon is longer than one year, these funds aren’t the best option because they offer low capital gains, which means investors risk losing money. These funds may become beneficial to senior persons and other low-risk investors because they are highly secure, particularly when compared to equity-oriented funds.

How to Invest in Money Market Mutual Funds

Any investor can get the rewards of investing by following these simple steps. Follow the steps below to invest in money market funds in a hassle-free and paperless manner:

Step 1: Log on to the website and create an investment account.

Step 2: Fill in the blanks with the needed information.

Step 3: Complete your KYC; the entire procedure should take no more than five minutes.

Step 4: Pick the best money market funds for your needs and invest in them.

Money Market Funds: Benefits and Drawbacks

Money market mutual funds meaning competes with other investment options like bank money market accounts, ultrashort bond funds, and improved cash funds. These investment alternatives may invest in a broader range of assets and seek great returns.

The fundamental purpose of the best money market funds is to provide investors with a safe and liquid alternative to invest in cash-equivalent debt-based assets in smaller amounts. In the world of mutual funds, money market funds are considered a low-risk, low-return investment.

Many investors like to put substantial quantities of money into these funds for a short period. Money market mutual funds, on the contrary, are not suitable for long-term objectives like retirement planning. This is because they do not offer considerable capital growth.

Money market funds seem to be appealing to investors because they have no entry or exit fees. Many funds also offer tax advantages to investors by investing in municipal securities that are tax-free at the federal level.


  • Extremely low-risk
  • Extremely liquid
  • Returns are higher than bank accounts.


  • Not insured by FDIC.
  • There’ll be no capital gain.
  • Monetary policy is susceptible to interest rate changes.

Taxation Of Money Market Funds

If an investor sells his investment within three years of purchase, he must pay short-term capital gains tax. The tax rate depends on the investor’s tax bracket.

If gains are retained for more than three years, they will be subject to long-term capital gain tax. Investors, on the other hand, can benefit from indexation.  After deducting the benefits from the earnings, investors will have to pay 20% of the remaining money. 

Few Things To Consider As an Investor

All investors should consider the following aspects before deciding on the best money market funds as an investment option:

1. Risk

Credit risk relates to both the safety of funds invested and the chance of default. Because of the short duration and high creditworthiness of the securities invested in, Money Market Funds are quite safe and offer low risk.

2. Return 

It is common knowledge that risk and reward are inextricably linked. As a result, while Money Market Funds have a lower risk profile than other funds, they also have a smaller return. They nonetheless give a greater return when compared to other potential investment channels with the same period and risk.

3. Investment Horizon

Money market funds are suitable for investing for extremely short periods, such as three months to a year. Alternative debt funds, such as dynamic bond funds, are a good option for medium-term goals.

4. Taxation 

Any money market fund return is subject to taxation in the hands of the investor. Interest and dividends earned from the fund are taxable at the usual slab rates under the Income Tax Act of 1961. In general, capital gains on sales will be taxed based on the time interval between the acquisition and sale dates.

Money Market Mutual Funds – FAQs

Q1. What is a money market fund?

Ans. The money market mutual funds meaning is to invest in high-quality assets such as short-term instruments, cash, and cash equivalents.

Q2. How long should we use money market mutual funds in my portfolio?

Ans. Money Market Mutual Funds are best for investors with a one-year investment horizon.

Q3. Is a Money Market Fund the same as a mutual fund?

Ans. Yes. A Money Market Fund is a Debt Mutual Fund that invests in short-term fixed-income instruments such as Corporate Bonds and Commercial Papers.

Q4. Is the federal government insuring money market mutual funds?

Ans. Money Market mutual funds, on the other hand, are neither insured nor backed by the government. Government Money Market Funds, on the other hand, may have the assets in which the funds are invested, secured, or guaranteed by the government.

Q5. What are money market mutual funds’ advantages?

Ans. Money Market Mutual Funds are the best option for risk-averse investors searching for an alternative to standard investing options like fixed deposits. The main advantage of investing in these funds is that they provide better returns than fixed deposits while retaining the same risk and liquidity levels.

Q6. How do you choose the best money market funds to invest in?

Ans. Investment is complete in the best money market funds by subscribing to the funds’ units directly through their websites or via Demat accounts.

Q7. Is it risky to invest in money market mutual funds?

Ans. While these funds only lend for up to a year, they constantly adjust the length of time they lend for greater returns and lower risk.

Q8. In which money market mutual funds do we put our money?

Ans. Money market funds make loans for up to a year. These funds are constantly altering the length of their loans to maximize profits while limiting risk.

Q9. What kind of money market returns can we expect?

Ans. Money market funds have returned an annualized rate of 3.91 percent over the last year. Their annualized returns over three and five years are 5.66 percent and 6.27 percent, respectively.

Marketvein Staff
Marketvein Staff
Born libra, likes to lead from the front. Digital Marketing & Technology is his strength. He has pursued engineering. Travelling to new places & writing is his idea of fun. In his free time (if he gets some that is), he is seen donning the chef's hat at home.
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