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What are Money Market Funds, and How to Invest them?

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Created on
July 29, 2022


What’s Inside

Money market funds serve as a bridge between short-term investment and liquidity. Learning about money market mutual funds' assets and investing in them can lead to stable short-term financial growth.

Landscape of Money Market Instruments in India

To understand money market funds, we need to know about money market instruments. These are important for short-term borrowing and lending and help the economy grow.

Examples in India include:

  • Treasury Bills (T-Bills)

T-Bills are short-term securities issued by the government, with maturities ranging from 14 to 364 days. They serve as a means for the government to raise funds quickly.

  • Commercial Paper (CP)

Corporations issue CP to raise short-term funds directly from investors. CPs have maturities of up to one year.

  • Certificates of Deposit (CD)

Issued by banks, CDs are time deposits that pay a fixed interest rate. They have maturities ranging from 7 days to 1 year.

What are Money Market Funds?

Money market funds are short-term, low-risk investment options that pool funds from multiple investors to invest in money market instruments. The key objective is to preserve capital while generating stable returns that outpace traditional savings accounts.

Benefits of Money Market Funds

  • Liquidity: Money market funds offer quick access to funds, ensuring you're prepared for unexpected expenses or opportunities.
  • Stability: With a focus on low-risk instruments, these funds aim to maintain a steady net asset value, providing a stable avenue for your investments.
  • Better-than-bank Returns: While not designed for high growth, most money market funds provide returns above traditional savings accounts.
  • Diversification: Money market funds invest in various short-term instruments, spreading risk across multiple avenues.

Steps of Investing in Money Market Funds

Investing in money market funds is a straightforward process that usually includes the following steps:

1. Choose a Fund

Research and select a money market fund that aligns with your risk tolerance and financial goals. Consider factors like expense ratios and historical performance.

2. Open an Account

Open an investment account with the fund house or financial platform offering the chosen money market fund.

3. Complete Formalities

Complete the necessary documentation, including Know Your Customer (KYC) requirements.

4. Investment Amount

Decide the amount you wish to invest. You can choose to invest a lump sum amount or via the SIP option.

5. Monitor and Manage

As a good practice, keep an eye on the fund's performance to plan your next moves.

Things to Consider Before You Invest in Money Market Funds

  • Risk Awareness: Although quite stable, money market funds are not entirely risk-free. Understand interest rate changes and credit risks before investing.
  • Returns: Returns depend on interest rates and the asset-composition of the fund. While they’re modest, they usually surpass savings accounts returns.
  • Expense Ratios: Consider expense ratios (ER), as a high can reduce overall returns.
  • Investment Horizon: Money market funds suit short-term needs. For longer-term goals, you can explore other investment options.

In Summation

Money market mutual funds offer readily accessible capital while earning more than traditional savings accounts. The returns are influenced by prevailing interest rates and the composition of the fund's holdings. While they offer safety, keep in mind that money market funds are not entirely risk-free. Changes in interest rates and credit risks can impact returns.

Invest in Money Market Funds Via Fi

Users can find several investment options on the Fi app. Be it short-term or long-term — it's easy to invest with a simple swipe of your phone's screen. Fi also offers a Peer-to-Peer investment feature called Jump! Jump can help you earn up to 9% p.a on your investment. But if you want to save up for a short-term goal & earn interest on it, select our super-flexible Smart Deposit. If you're looking for higher/stable returns, opt for a Fixed Deposit.

Frequently Asked Questions

1. What are money market funds?

Money market funds pool funds from investors to invest in low-risk, short-term money market instruments, aiming for stable returns.

2. How do I invest in money market funds?

To invest in a money market fund; research and choose a fund, open an online account with the fund house or a mutual fund platform, complete documentation, and invest the amount.

3. What are money market instruments in India?

Money market instruments in India include Treasury Bills, Commercial Paper, and Certificates of Deposit.

4. What are the expected returns from money market funds?

Money market funds are known to offer slightly higher returns than savings accounts. However, they are influenced by interest rates and fund composition.

5. Are money market funds risk-free?

Money market funds aim to provide stable, low-risk returns. However, like any other investment tool, they are not entirely risk-free. Interest rate fluctuations and credit risks can impact your returns.

6. How do money market funds contribute to financial stability?

Money market funds offer a stable avenue for short-term liquidity needs, bridging the gap between risk and returns.


Investment and securities are subject to market risks. Please read all the related documents carefully before investing. The contents of this article are for informational purposes only, and not to be taken as a recommendation to buy or sell securities, mutual funds, or any other financial products.
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