Investing Made Easy: Understanding Money Market Funds
It is a type of mutual fund that invests in highly liquid, low-risk securities such as government securities, treasury bills, certificates of deposits (CDs), and commercial papers. These funds are designed to provide investors with a steady income stream while preserving your cash requirements.
Benefits of Investing in Money Market Funds
- They have very little volatility and fluctuation in their value.
- Money market funds provide a safe and secure way to grow your portfolio.
- These funds also offer tax benefits to investors, allowing them to reap additional rewards from their investments.
- Money market funds diversify your portfolio, helping to spread your risk across various instruments.
Top 10 Performing Money Market Funds
How to invest in Money Market Funds
Money market funds are available through banks, mutual fund companies, and online brokerage platforms. To invest in these funds,
- You need to open an account with the relevant institution and then make a deposit.
- Once you have made the deposit, you can select the fund that best suits your investment objectives and risk tolerance level.
- Provide the required information so you can access your investment quickly.
Taxation of Money Market Funds
Money Market Funds are subject to taxation depending on the type of securities and allocation of the fund.
|Type of money market funds||Long-term capital gains||Short-term capital gains|
|Equity-oriented money market funds (more than 60% allocation to equity)||Capital gains arising from investments held for more than one year are taxed at 10% (if gains exceed ₹1 lakh in a financial year) and are tax-free (if gains are less than ₹1 lakh in a financial year)||If units of money market funds are sold within a year, then Short Term Capital Gains Tax of 15% will be applicable.|
|Debt-oriented Money market funds||Debt-oriented hybrid funds are taxed at 20% after indexation if held for more than 3 years.||Short Term Capital Gains are taxed as per applicable income tax slab if units are sold within 3 years.|
FAQs on Money Market Funds
A money market short-term fund is a type of mutual fund that invests in highly liquid, low-risk securities such as government bonds, Treasury bills, certificates of deposits (CDs), and commercial papers. They are designed to provide investors with a steady income stream while preserving their principal.
Money market funds offer investors low risk and high liquidity, along with tax benefits and peace of mind. They also provide a convenient way to grow your portfolio without taking on too much risk.
Money market mutual funds are not insured by the government. However, private insurance policies may cover some money market mutual funds. It is important to check with your financial institution to determine if a particular fund is insured before investing.
Yes, money market funds are a type of mutual fund. Mutual funds are collections of stocks, bonds, and other securities that are managed by professional money managers. The main distinction between money market funds and other types of mutual funds is the focus on high-quality, low-risk investments.
Money market funds are considered to be very low-risk investments, but there is always a chance of loss. The fund's NAV may decline if the underlying securities held by the fund decline in value or the fund manager makes an investment decision that does not pan out as expected. It is important to research and understand how your money market fund is invested before investing.
To invest in money market funds in India, you need to open an account with a bank or financial institution that offers these funds. Many banks and online brokerage firms provide access to money market funds. Once you have opened an account, you can select the fund that best suits your investment objectives and risk tolerance level. You can then make deposits into the fund and start reaping the rewards of investing in low-risk securities.