A Money Market Fund invests in highly liquid, short-term instruments (maturities up to 1 year) — Treasury Bills, commercial paper, CDs — offering better returns than liquid funds with similar safety.
Money market funds invest exclusively in money market instruments with maturities up to 1 year. These include: Treasury Bills (T-bills issued by RBI), certificates of deposit (CDs from banks), commercial paper (CPs from corporations), and repo agreements. The portfolio has very short duration — typically 3–6 months — keeping interest rate risk low. Returns are driven by short-term interest rates in the economy.
The 'money market' is where institutions borrow and lend for days, weeks, or months at a time. A money market fund participates in this lending — lending to the government (T-bills), banks (CDs), and top-rated companies (commercial paper) for short periods. It's a step above liquid funds in potential return with similar very-low risk profile. Good for 3–6 month horizons.
Invests only in instruments with maturity up to 1 year.
Instruments: T-bills, CDs from banks, CPs from high-rated companies, repos.
Low interest rate sensitivity due to short maturities.
Credit risk limited to high-rated counterparties (typically AAA or equivalent for CPs).