Investing in money market MFs

In India, an average investor barely knows about money market mutual funds (MMMFs), and even if he is aware, he seldom ventures to invest in these funds. There is a tendency among Indian investors to opt for known investment avenues such as bank fixed deposits, bonds, debentures, PPF, etc. The lack of awareness amongst investors about MMMFs deprives them of a good investment opportunity.

The MMMF is an open-ended mutual fund scheme that invests in treasury bills, commercial papers, certificates of deposits, etc. having maturity period of one month to a year. These instruments are of high quality and are highly liquid, offering safe returns to the investors.

Among the MMMFs, the gilt funds invest in government securities and bonds that offer highest security and decent returns over the short term. Since the gilt funds invest in government securities, there is absolutely no risk to capital, while the returns too are quite good.

The Fixed Maturity Plans (FMP) are also good investment options in the MMMF category. These are closed-ended debt mutual funds having varying periods of maturity ranging from one month to five years. These funds invest in commercial papers, certificates of deposits, triple-A rated corporate bonds, money market instruments and bank FDs. The benefit of indexation is available on the capital gains made on the FMPs, which makes the FMPs more tax-efficient than bank FDs.