Money market funds are a great investment option for meeting short-term financial goals. Before investing in them, you should have information about the various features of money market funds, properties of money market mutual funds, advantages and disadvantages of money market funds, etc., so that you can make the right choice—way to invest.
Features of Money Market Funds
Money market funds seek to offer the highest short-term income possible while maintaining a well-diversified portfolio. Investors with a short investment horizon of up to one year can invest in these funds. What is you money market fund? And after getting information about their different types, you can start investing in them.
These funds have the potential to offer higher returns than regular savings bank accounts and fixed deposits. Let us look at the various features of money market funds, after knowing which you can take the right investment decision to meet your short-term financial goals.
Short Duration Funds
The tenure of Money Market Mutual Funds is short term i.e. between 7 days to 365 days, which are considered suitable for your short-term financial goals. This feature of money market gives investors 6-12% returns in a very short period of time.
Best for Short-Term Goals
These funds have almost fixed maturity period and provide low but steady returns. If you have a short term investment objective to create a corpus for upcoming expenses, then these types of mutual funds are a great option for you. Apart from these, you also have the option of investing in Hybrid Funds, which can meet your short term financial goals.
Highly Liquid Funds
Money market mutual funds are open ended feature funds. They have no exit loads and can be redeemed quickly. These funds offer instant redemption, so the cash comes into your bank account on the same trading day.
These funds have the potential to give higher returns than a regular savings bank account. However, returns are not guaranteed. Your returns can also fluctuate due to fluctuations in the Net Asset Value (NAV) along with changes in the overall interest rate regime. If you want maximum returns then you can invest in different types of equity funds.
Cash or Cash Equivalents
Money market mutual funds are used to manage short term cash needs. These funds are open-ended in the debt fund category and deal only in cash or cash equivalents. Their average maturity is one year. This is the most important characteristic of money market funds.
Maturity One Year
The fund manager invests in high quality liquid instruments such as Treasury Bills (T-Bills), Commercial Paper and Certificates of Deposit. Money market funds primarily aim at earning interest for the unit holders by investing in securities of less than one year duration. You can learn about debt funds and start investing to get steady income in the short term.
Almost Risk Free Funds
The low-risk feature of a money market mutual fund sets it apart from other high-risk securities. These funds are not risk-free like Fixed Deposits nor are they extremely risky like Equity Funds, hence the investment is considered almost safe.
Money market funds are very flexible. They offer growth and dividend plans. You can receive dividends on a daily, weekly or monthly basis. You can change your plan and transfer as per your convenience. You can make a list of top companies in India and start investing in them to get better income.
The money is invested in high credit rating money market instruments, hence these are one of the safest investment options available in the market. It is very important for any investment to be safe, the specialty of these funds is that they invest your investment in safe securities with expert analysis.
These funds allow investors to invest as per their capacity. Investors can opt for Systematic Investment Plan (SIP). This does not put any financial pressure on the investors. SIP investment helps investors to invest in mutual funds as per the financial capability and monthly savings.
Investing in High Credit Rating Funds
The focus of these types of funds is basically capital protection rather than ensuring high returns. Hence, fund managers invest only in those instruments which have a high credit rating. This feature of these funds also helps in generating higher returns for the investors.
High returns depend on good fund planning and these funds are managed by stock market expert so most likely they invest in high rated funds and provide best returns. This feature of mutual funds makes them most popular among investors as compared to other investment options.
Lower Expense Ratio
These funds are cost-convenient. Hence one can invest easily and get assured returns over time. It is not an expensive option for investors. The expense ratio is always low, so they are considered a better option to invest in mutual funds.
Since, money market mutual funds invest in fixed-income resources of various entities, there is a risk of default. If one of the companies defaults, it reduces the NAV but you must remember that the risk is very low as the fund manager invests only in funds with high credit ratings.
You learned about the features and characteristics of money market funds, which may benefit your investment decision. It is a great investment opportunity, these funds are seen as a favourable investment option as they strive to provide stable and low-risk returns that are better than other comparable options like fixed deposits and bank savings accounts.