Money market funds best for interim
Money market funds have emerged as an alternative for individuals parking their funds for a short duration, typically three to six months. These funds are attracting conservative investors seeking better yields without significant risk as they provide a combination of safety, liquidity, and relatively stable returns. Also, given the recent volatility in the markets, some long-term investors are viewing money market funds as an interim solution.
In October, money market funds received net inflows of Rs 6,248 crore, the second highest in the debt-oriented schemes. These funds allow investors to maintain liquidity and stability in the short term while strategically identifying and allocating their funds to more suitable long-term investment options as market conditions evolve. This adaptive approach enables investors to navigate the current market uncertainties while positioning themselves for long-term success.
Nirav Karkera, head, Research, Fisdom, says that within the spectrum of short-term investment options, money market funds offer flexibility by deploying funds in instruments maturing up to one year. “This stands in contrast to other categories, such as ultra short-term and low-duration funds, which have specific duration constraints ranging from 3-6 months and 6-12 months, respectively. Money market funds, therefore, provide a versatile solution capable of adjusting its duration dynamically based on market conditions,” he says.
Money market funds invest in short-term debt instruments of maturity of up to one year and typically invest in T-bills, commercial paper and commercial deposits. Investors prefer them because the underlying debt papers are of highest quality and give slightly better return than liquid fund
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