Financial Awareness Level
What are Money Market Mutual Fund Schemes?
Introduction
Money market scheme is a category of debt mutual fund schemes that invests in Money Market instruments having maturity up to 1 Year. These schemes are designed to provide liquidity, capital preservation, and stable returns, making them ideal for conservative investors looking for short-term investment options.
What is a Money Market Scheme?
A money market scheme pools investors' money and allocates it to short-term debt securities with high credit ratings. These schemes aim to offer low-risk investment options while ensuring quick access to funds. They are widely used by both individual and institutional investors to park surplus cash temporarily.
How Do Money Market Scheme Work?
Money market schemes invest in instruments with maturities typically under a year. The fund manager actively selects money market instruments to ensure stability and risk mitigation. Since these funds invest in short-term securities, they are relatively less volatile compared and offer predictable returns.
Benefits of Money Market Scheme
- High Liquidity: Investors can redeem their money quickly, making it a great option for short-term financial needs.
- Low Risk: This scheme invest in high-quality debt instruments, reducing the risk of default.
- Stable Returns: While returns are not as high as equity schemes, they are relatively predictable and stable.
Risks Associated with Money Market Scheme
- Interest Rate Risk: If interest rates rise, the value of existing securities in the portfolio may decline.
- Inflation Risk: Returns may not always keep pace with inflation, potentially reducing real purchasing power.
- Credit Risk: While low, there is still a possibility of default by issuers of debt instruments.
Who Should Invest in Money Market Scheme?
- Investors looking for a short-term investment option with minimal risk.
- Those who need an alternative to other savings instruments with possibly slight better returns. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
- Businesses and individuals seeking a temporary parking space for surplus cash while maintaining liquidity.
Conclusion
Money market scheme are an excellent choice for investors prioritizing safety, liquidity, and stable returns. They serve as one of the alternatives for short-term investments while maintaining easy accessibility to funds.
Additional links:
What is a Mutual Fund? - Beginner's Guide to Investing
AMFI - Introduction to Mutual Funds
FAQ Section
What are Money Market Scheme?
Money Market Scheme are the category of debt mutual fund scheme which invest in Money Market instruments having maturity upto 1 Year to provide liquidity and relatively stable returns. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
How do Money Market Scheme work?
These schemes pool investor money and invest in short-term securities with maturities typically under a year. Fund managers focus on preserving capital while ensuring liquidity and possibly generating stable returns. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
Are Money Market Scheme safe?
While they are considered low-risk due to their investment in high-quality debt instruments, they are not entirely risk-free and are subject to interest rate and credit risks. You are recommended to invest according to your risk appetite and investment objective and further, you may also seek advice from your financial advisor, for better understanding.
What are the key benefits of investing in Money Market Scheme?
- High Liquidity: Quick redemption with minimal impact on value.
- Low Risk: Investments in high-credit-quality debt instruments.
- Stable Returns: More predictable than equity schemes.
What risks are associated with Money Market Scheme?
- Interest Rate Risk: Fluctuations in interest rates can impact returns.
- Inflation Risk: Returns may not always outpace inflation.
- Credit Risk: A low possibility of default by debt issuers.
Who should invest in Money Market Scheme?
- Investors seeking short-term, low-risk investment options.
- Businesses and individuals needing a temporary parking space for surplus cash.
How liquid are Money Market Scheme?
They offer high liquidity, allowing investors to redeem funds quickly, usually within one business day.
How are Money Market Scheme taxed?
Returns are taxed as per the investor's income tax slab for short-term holdings. Long-term investments (over three years) are taxed at 20% with indexation benefits. (You are recommended to seek advice from tax advisor for latest tax legislations before you take any/refrain from any action)
How can I invest in Money Market Scheme?
Investors can invest through mutual fund houses, financial advisors, or online investment platforms after completing KYC formalities.
Did you find this article Interesting?
1
2
3
4
5
Recommended For You
Beginner
The Time Value of Money: A Cornerstone Concept for Smart Investors
5 min read
Intermediate
Understanding the Time Value of Money
5 min read
Intermediate
Calculating the Time Value of Money
5 min read
An Investor Education And Awareness Initiative
Visit https://www.hdfcfund.com/information/key-know-how to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html). For any queries, complaints & grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints directly with the AMCs. If they are not satisfied with the resolutions given by AMCs, they may raise complaint through the SCORES portal on https://scores.sebi.gov.in/scores-home/. SCORES portal facilitates investors to lodge complaint online with SEBI and subsequently view its status. In case the investor is not satisfied with the resolution of the complaints raised directly with the AMCs or through the SCORES portal, they may file any complaint on the Smart ODR on https://smartodr.in/login.
The information is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY
