Understanding Money Market Funds

Understanding different types of mutual funds will not only help you make a wise decision but will also help you diversify your investment portfolio. One such type of mutual fund, which offers security to your investment, is a money market fund.

What is a money market fund?

A money market fund is a mutual fund where the money is invested into secure liquid instruments, which include commercial papers, treasury bills, repurchase agreements, and certificate of deposits, which have a maturity period of less than a year.

It is an open-ended scheme, which invests in short-term market instruments that have a maturity period of up to 91 days.

Why should you invest?

One reason to invest in the money market fund is the security of the investment. The money will remain safe and secure because it is invested in highly secure instruments.

Another benefit is the short investment period. You can invest in the money market fund for a period of three months and receive your investment back.

The disadvantage of investing in the fund is the low and stable returns. If you seek high returns and growth, the fund is not for you. It carries low risk and will have stable returns; however, the investment will not double or multiply in 91 days.

Who should invest?

Investors with a low-risk appetite and a short investment horizon can choose the funds. If you want secure and stable returns, this fund is for you.

The investment can help you in times of emergency. This fund is ideal for older investors, who seek the security of the investment and are not keen to make the most of the market movements.

What are the features of money market funds?

A money market fund is defined by the short period of investment. In addition, it carries low risk and has stable returns, along with the ability to diversify your portfolio.

Things to know before investing

Primarily, keep your financial goals in mind when investing in money market funds. The fund has stable returns and a low risk.

If your goal is to multiply the investment, then this might not be the right fund. You can enjoy the security of the investment and stable returns through the investment period.

If you have excess cash on hand for a period of three months, you can choose to invest in the fund and diversify your portfolio.

How should you select the fund?

In order to select this fund, you need to consider the past performance of the fund and the expected returns on the same. Shortlist the funds you are interested in and compare the performance of the funds.

You should have the knowledge about the interest rate offered by money market accounts. Choose a fund that generates higher returns than the interest paid by the money market accounts. A money market account is similar to the savings account but pays a higher interest rate.

This secure and safe investment product is an ideal addition to your portfolio. If you have cash on hand and do not need it for a couple of months, investing in a money market fund will help you enjoy returns in a short period.

What are the best money market funds?

We have listed down a few of the best money market funds that you can think about investing. For more details, set-up your account and talk to our financial advisor today:

• Aditya Birla Sun Life Savings Fund Growth
• ICICI Prudential Ultra Short Term Fund Growth
• SBI Magnum Ultra Short Duration Fund Growth
• DHFL Pramerica Ultra Short Term Fund Growth
• Reliance Ultra Short Duration Fund Growth

Common mutual funds investment mistakes

To ensure the investments you make help you toward a financially secure future, you must avoid certain investment mistakes that a lot of newcomers end up making. Mistakes such as:

Fear of Missing Out:

Never invest in schemes on a notion of “others are investing” or just because “market is Up”. Before taking any decision you have to do research, lay down your investment plan and understand the best possible schemes that will help you achieve your goals and help you grow your investments.

Investing in Lump Sum Money:

Investing a huge chunk of your money in one go might seem like a good idea for some investors but it is not a good method. Your ability to manage market risks and to carry out asset allocation is deeply reduced if you make a lump sum investments. Having a systematic investment plan helps you invest your money periodically and optimise your returns based on the financial goals you want to achieve.

To read the entire list of common mistakes that you should avoid, check out 10 mistakes to avoid while investing in mutual funds.

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