Key Factors to Consider Before Investing in Money Market Funds
The time has passed when people use to keep their extra money in traditional savings accounts or at any place safe. Now, they prefer investing it in money market funds, which yield higher returns and liquidity at the same time.
These open-ended schemes invest most of their corpus in high-quality liquid instruments such as commercial papers, treasury bills, certificates of deposits, and all such instruments which have the maturity period of less than one year. These funds also invest your capital in the very-short-term instruments, which have the maturity period of approximately 91 days. Such instruments help one to cope-up with the emergency capital requirements.
No matter whether you have to pay the salary to your staff or school fees of your children, you can save the money for all these purposes even for 2-3 days in the money market funds. If you are an investor with a low-risk appetite, you may invest in these funds as they protect your capital in quality securities. Let’s find out more about them in this write-up!
Types of Money Market Securities:
There are various kinds of categories under money market mutual funds, which are worth your investments:
Debt Funds: The funds which provide capital to companies by investing in the debentures that are issued by various corporate houses are known as debt funds. In these kinds of schemes, as an investor, you will get regular returns in the form of interest. They are great for conservative investors who have a short-term or medium-term investment horizon.
As per the financial experts of MySIPonline, these funds offer a minimum interest of around 6-8% per annum, with liquidity to meet financial necessities.
Gilt Funds: These funds invest their corpus in the government or corporate bonds. They invest the fund in low-quality bonds, which offer good returns in the long run. Considering the market, they are highly volatile due to the high pressure of repo rates and interest. However, they offer diversified portfolio which yields guaranteed returns.
These funds even offer you higher interest rates if the market rates are in their favour. The financial experts of MySIPonline suggest you to invest in gilt funds if you can see the fall in rates in the near future.
You can invest in the above-listed categories of funds if they fit in your risk appetite and also meet your decided goals. But before investing, you must consider the following factors, which help you in the long run:
- Portfolio Composition: You should look at the asset allocation of the fund before investing in it. You must know in which company’s instruments the fund is investing your amount. Look for the instruments it has bought, government securities, corporate bonds, treasury bills or corporate papers, etc.
- Maturity Period: Maturity time-period plays a vital role in the money market funds. The investors invest in the funds so that they may use the amount whenever required. Hence, the maturity of instruments under these funds make it more viable for investors who are looking for the capital appreciation in the short-term.
- Returns Rate: The returns of the money market funds are higher than any other traditional savings instruments. Therefore, people invest in these funds. So, you must watch out for the returns that are provided by these funds in the past, which will provide you with information about how it can perform in the future. However, the returns get affected by various other conditions too, but if they are decent from a long-term perspective, you can park your money.
- Liquidity: You must know that how the fund is managing its liquidity. Do the fund manager and his team continuously making money from every rupee for every day? As the money market funds are entirely based on the demand-supply market of money, it is very much essential for the fund houses to keep proper liquidity in the schemes.
Money market securities trade in the wholesale market, where many retail investors participate to earn returns in a short-term period. Therefore, if you are looking for the investment in any money market fund, you must acknowledge the details provided in this write-up. To seek more information on the same, stay tuned with MySIPonline. If you have any query, you may connect with our financial experts via call or email.
- This Independence Day, Let's Pledge for Freedom from Financial Worries1886 min read Aug 14, 2018
- Are Balanced Funds Better Than Balanced Advantage Funds?2984 min read Aug 02, 2018
- 7 Points to Ponder While Investing in Small Cap Funds7203 min read Jul 19, 2018