Money Market Mutual Funds

What are the features of money market funds?

• These funds have low risks and the potential to yield good returns.

• There’s no capping on the maximum investment amount

• No exit load is charged on redemptions

• Credit risk and interest rate risk are low since the maturity of the underlying securities is low

• You can choose the Systematic Transfer Plan (STP) and transfer your investment from money market funds to equity funds at regular intervals

Things to keep in mind when investing in money market funds

What are the types of risks that money-market mutual funds face?

• Credit risk

  Risk of default on the debt instrument

• Interest rate risk

  Risk of rising interest rates, which reduces the value of debt instruments

• Reinvestment risk

  Risk of not getting good returns on reinvestment

• Inflation risk

  Risk of inflation reducing the returns from the debt fund

• Liquidity risk

  Risk of not being able to trade in debt instruments

What is the tax implication of money market funds?

• Returns earned are taxed at your income tax slab rates

• Dividends earned, if any, are taxed at your income tax slab rate

What are the payout options?

• Dividend option

  Earn dividends on your investment at regular intervals

• Growth option

  Accumulate the returns over the investment tenure and get a lump sum amount on redemption