Money Market Funds in India: Meaning, Benefits & Taxation
Money market funds in India have become a staple investment avenue in the financial market. These funds invest in short-term debt instruments such as commercial paper, treasury bills, and certificates of deposit, providing a steady stream of returns while maintaining a high level of liquidity. With their reputation for stability and minimal risk, money market funds have become a popular choice for investors seeking to optimise their short-term investments.
In this blog, we will explore the best money market funds in India and learn more about their features, benefits, risks, the meaning of Indian money market funds and how to invest in money market in India.
Top Money Market Funds List Based on 5Y CAGR
| Fund Name | Fund Size (in cr) | 3Y CAGR (In %) | 5Y CAGR (in %) |
|---|---|---|---|
| Tata Money Market Fund | ₹21,693.41 | 6.44 | 6.18 |
| Aditya Birla SL Money Manager Fund | ₹26,499.23 | 6.35 | 6.15 |
| HDFC Money Market Fund | ₹23,661.02 | 6.29 | 6.10 |
| HSBC Money Market Fund | ₹1,749.88 | 6.05 | 6.09 |
| Axis Money Market Fund | ₹10,632.98 | 6.33 | 6.09 |
| Nippon India Money Market Fund | ₹17,694.49 | 6.37 | 6.03 |
| SBI Savings Fund | ₹29,357.76 | 6.25 | 6.01 |
| ICICI Pru Money Market Fund | ₹26,267.60 | 6.25 | 5.99 |
| UTI Money Market Fund | ₹14,308.33 | 6.31 | 5.98 |
| Franklin India Money Market Fund | ₹1,467.42 | 6.14 | 5.90 |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data in this list of money market funds, including the money funds share price is from 2nd September 2024. This data is derived from the Tickertape Mutual Fund Screener.
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of Money Market Funds in India (2024)
Tata Money Market Fund
Tata Money Market Fund is a largecap fund scheme from Tata Mutual Fund. The fund has an AUM of Rs. 21,693.41 cr. and has an expense ratio of 0.15% as of 2nd September 2024. Since inception, the fund’s annualised performance has been 6.65%. In terms of composition, the Certificate of Deposit makes up for the majority of the fund at 55.09% along with the largest allocation towards Public Banks at 35.44%.
Aditya Birla SL Money Manager Fund
Aditya Birla Sun Life Liquid Fund is a liquid mutual fund scheme from Aditya Birla Sun Life Mutual Fund. The fund’s annualised performance has been 7.4% since inception. As of 2nd September 2024, the fund’s AUM is Rs. 26,499.23 cr. The fund has an expense ratio of 0.22%, which is close to what most other liquid funds charge. The fund’s 5-yr CAGR is 6.15% which is the second-highest among the list of best-performing money market funds in India.
HDFC Money Market Fund
HDFC Money Market Fund Direct Growth is a Money Market mutual fund scheme from HDFC Mutual Fund. The money market fund has an AUM of Rs. 23,661.02 cr. as of 2nd September 2024. The fund has delivered 7.3% average annual returns since its inception. The large-sized fund has a 5-yr CAGR of 6.10%, and its 3-yr CAGR is 6.29%. It has a lower expense ratio of 0.20%. The fund’s current net asset value (NAV) is Rs. 25.96, and it has no lock-in period and exit load.
Axis Money Market Fund
Axis Money Market Fund is a mutual fund scheme offered by Axis Mutual Fund, established on 26 July 2019, and has been operating for over five years. As of 2nd September 2024, it manages assets worth Rs. 10,632.98 cr., making it a medium-sized fund within its category. The fund’s expense ratio is 0.13%, aligning closely with the average for money market funds. The fund has no lock-in period or exit load. Furthermore, the fund has a 5-yr CAGR of 6.09%, and a 3-yr CAGR of 6.33%.
Nippon India Money Market Fund
Nippon India Money Market Fund is a large-sized money market fund from Nippon India Mutual Fund. As of 2nd September 2024, the fund’s AUM is Rs. 17,694.49 cr. and has an expense ratio of 0.25%. The large-sized fund has a 5-yr CAGR of 6.03%, and a 3-yr CAGR of 6.37%. Furthermore, the fund’s composition is largely based on Certificate of Deposit. This makes up for the majority of the fund at 62.04%. The fund’s largest allocation towards Public Banks stands at 32.97%.
SBI Savings Fund
SBI Savings Fund is a large-cap money market mutual fund scheme from SBI Mutual Fund. As of 2nd September 2024, the fund’s AUM is Rs. 29,357.76 cr. and has an expense ratio of 0.25%. The large-sized fund has a 5-yr CAGR of 6.01%, and it has a 3-yr CAGR of 6.25%. However, in terms of composition, the Certificate of Deposit makes up for the majority of the fund at 60.4%. Its largest allocation is towards Public Banks at 31.84%.
ICICI Pru Money Market Fund
ICICI Pru Money Market Fund is a large-sized money market fund from ICICI Mutual Fund. As of 2nd September 2024, the fund’s AUM is Rs. 26,267.60 cr. and has an expense ratio of 0.21%. This money fund has a’ 5-yr CAGR of 5.99%, and it has a 3-yr CAGR of 6.25%. In terms of composition, the Certificate of Deposit makes up for the majority of the fund at 50.82% along with the largest allocation towards Public Banks at 33.04%.
UTI Money Market Fund
UTI Money Market Fund is a large-sized money market mutual fund scheme from UTI Mutual Fund. As of 2nd September 2024, the fund’s AUM is Rs. 14,308.33 cr. and has an expense ratio of 0.19%. This money fund has a 5-yr CAGR of 5.98%, and it has a 3-yr CAGR of 6.31%. In terms of composition, the Certificate of Deposit makes up for the majority of the fund at 57.38% along with the largest allocation towards Private Banks at 30.5%.
Franklin India Money Market Fund
Edelweiss Money Market Fund is a small-size fund launched by Edelweiss Mutual Fund. As of 2nd September 2024, the fund has an AUM of Rs. 1,467.42 cr. Under our list of top-rated money market funds, the small-size fund has an expense ratio of 0.14%, which is close to what most other money market funds charge. The fund has a standard deviation of 0.31%, higher than its category average of 0.33%. However, in terms of composition, Certificate of Deposit makes up for the majority of the fund at 53.96% along with the largest allocation towards Public Banks at 31.59%.
How to Invest in Money Market Funds?
Investing in money market mutual funds can be a straightforward process. Here’s a guide to get you started:
- Open a demat/trading/brokerage money market account in India. Investors can open a demat account with smallcase!
- Register online at any AMC website.
- Explore different money market funds to figure out which one suits your investment objectives.
- Investors can use tools like the Tickertape Mutual Fund Screener to sort through these money market funds and explore their fundamentals and performance in the past. They can sort through the 200+ filters available to track fund performance.
- Proceed to invest by clicking on the appropriate option and specifying the amount and investment mode (SIP or Lumpsum).
- Submit your KYC details, including your PAN number and bank details, to finalise your investment.
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What are Money Market Funds?
Money market funds are often called “money funds” or “money market mutual funds”. Money market funds are a type of mutual debt fund that is invested in short-term, high-quality debt instruments. They aim to provide investors with a safe place to invest their cash while earning a return that is typically higher than a regular savings account. Money market funds are designed to provide investors with a high level of liquidity and a very low level of risk. These funds are also commonly referred to as money market mutual funds.
Types of Money Market Funds
There are different types of money market instruments in the market, some of them are as follows:
- Treasury Bills (T-Bills): This is a type of money market fund that is a short-term government security with maturities of up to one year.
- Certificates of Deposit (CDs): Time deposits issued by banks with fixed interest rates and specific maturity dates.
- Commercial Paper: Unsecured, short-term debt issued by corporations to finance immediate liabilities.
- Repurchase Agreements: Short-term borrowing for dealers in government securities.
- Bankers’ Acceptances: Short-term credit investments created by a non-financial firm and guaranteed by a bank.
Characteristics of Money Market Funds
Here are a few key features of money market in India
- Safety of Principal: Money market funds invest in high-quality, short-term debt money market instruments in India, which are considered to be safe and carry a low risk of default.
- Liquidity: These funds offer high liquidity, allowing investors to quickly and easily convert their shares into cash.
- Stability: They aim to maintain a stable net asset value (NAV), typically at $1 per share, to provide a predictable value for investors.
- Diversification: Money market funds invest in a diversified portfolio of short-term securities. This can include treasury bills, commercial paper, and certificates of deposit, among others.
- Yield: While the returns on money market funds are typically lower than those on long-term investments, they generally offer higher yields than traditional savings accounts.
- Regulation: Money market funds are regulated by the Securities and Exchange Commission(SEC) under the Investment Company Act of 1940, which imposes strict guidelines on the quality, maturity, and diversification of the fund’s investments.
Advantages of Money Market Funds
Investing in money market funds comes with several advantages:
- Capital Preservation: Due to the low-risk nature of the investments, term money market funds are suitable for preserving capital.
- Accessibility: Investors can quickly access their funds, making these funds a convenient option for managing cash or short-term savings.
- Competitive Interest Rates: Indian money market funds can offer higher interest rates compared to traditional bank savings accounts.
- Flexibility: They can be used as a holding place for cash that may be needed in the short term. They can also be used as a buffer within a larger investment portfolio.
How Money Market Mutual Funds Work?
The Money fund market operates by pooling investors’ money to purchase a diversified collection of short-term, high-quality debt securities. Here’s how they function:
- Investment Strategy: Fund managers select and invest in short-term debt securities that meet regulatory requirements for credit quality and maturity.
- Maintaining NAV: The funds strive to maintain a stable NAV through careful investment selection and valuation methods.
- Income Distribution: Dividends are typically paid out to investors from the interest earned on the underlying securities. This reflects short-term interest rates.
- Redemption: Investors can redeem their shares at any time, which provides flexibility and access to their funds.
Who Should Consider Investing in Money Market Mutual Funds?
Investors that can invest in money market mutual funds are as follows:
- Risk-averse Investors: For those who are averse to risk and new to investing, money market mutual funds present a good way to start investing. These funds can provide stable money market funds returns with minimal risk, making them an ideal choice for conservative investors.
- Short-term Investors: As an investor, if you want to fulfil your short term goals, then this money market short term funds can be highly feasible for you.
- Availability of Surplus Cash: If an individual has surplus cash that is not immediately required, they can benefit from investing in money market mutual funds. This approach ensures that the funds can grow over time.
Risks Involved with Money Market Funds
While money market funds are considered low-risk, they are not without potential risks:
- Credit Risk: Although minimal, there is a risk that an issuer of a security held by the fund could default.
- Interest Rate Risk: Changes in interest rates can affect the yield of money market funds, although the impact is typically less due to the short-term nature of the investments.
- Liquidity Risk: In times of market stress, some money market funds may face challenges in meeting redemption requests if too many investors withdraw funds simultaneously.
- Inflation Risk: The returns on money market funds may not keep pace with inflation, potentially leading to a loss of purchasing power over time.
Taxation on Money Market Funds
In India, money market funds are taxed like debt funds, here are a few changes made to the taxation of capital gains from Debt funds in the Union Budget of 2024-25:
Here is a detailed breakdown of the new tax rules:
Short-Term Capital Gains (STCG)
If you sell your debt fund units within three years (36 months), the gains from these investments are considered short-term capital gains. According to the new budget, these gains will be taxed according to your income tax slab rate.
Long-Term Capital Gains (LTCG)
For debt funds held for over three years (36 months), the gains are categorised as long-term capital gains. The key points to note under the new budget are:
- Tax Rate: The tax rate for long-term capital gains on debt funds is now a flat 12.5%, regardless of the amount of gain.
- No Indexation Benefit: The benefit of indexation, which previously allowed investors to adjust the purchase price of their assets for inflation, has been removed for debt funds. This means that the entire gain from selling a debt fund after three years will be taxable at the flat rate of 12.5%.
Summary
| Capital Gains Tax | Description |
| Short-Term Capital Gains (STCG) | If you sell your debt fund units within three years (36 months), the tax will be as per your income tax slab. |
| Long-Term Capital Gains (LTCG) | For debt funds held for over three years (36 months), the tax rate is now a flat 12.5% without indexation benefits. |
Factors to Consider Before Investing in Money Market Funds
Before investing in money market funds, consider the following factors:
- Investment Objectives: Ensure that the fund’s investment strategy aligns with your financial goals and time horizon.
- Risk Tolerance: Assess whether the low-risk profile of money market investment matches your risk appetite.
- Yield vs. Inflation: Compare the fund’s yield with the current inflation rate to determine if the investment will provide a positive real return.
- Liquidity Needs: Consider how quickly you may need to access your funds and whether the liquidity of money market funds meets those needs.
To Wrap It Up…
In summary, Money Market Funds provide a conservative investment option, ideal for those who value safety and liquidity. By focusing on short-term, high-quality debt instruments, these funds offer stability, a steady income, and easy access to your capital. For investors looking to balance risk and returns while preserving their capital, Money Market Funds can be a practical choice. Exploring this option could help you enhance your financial security and achieve your investment goals with greater confidence. However, it is important to conduct thorough research and consult a financial advisor before investing.
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Frequently Asked Questions (FAQs) on Money Market Funds
Based on the 5-yr CAGR, the top-rated market mutual funds to invest in India 2024:
(a) Tata Money Market Fund
(b) Aditya Birla SL Money Manager Fund
(c) HDFC Money Market Fund
Note: The data on this list has been taken on 2nd September 2024.
Money market instruments are considered relatively safe. This is due to their investment in high-quality, short-term debt instruments, but they are not risk-free.
Money market funds carry low risk as they invest in secure, short-term instruments, but they are not entirely free from credit and interest rate risks.
Money market funds invest in short-term debt money market securities like T-bills, CDs, commercial paper, and repos.
The money market is a market for the trading of short-term debt securities. At the wholesale level, institutions and traders engage in frequent, high-volume transactions. At the retail level, individual investors participate by purchasing money market mutual funds in India or opening money markets accounts at banks.
