Fund Types · Chapter 26 / 35
Money Market funds — short-end yield
Macaulay duration up to 1 year. Investment in money-market instruments. Sits between Liquid and Ultra-Short funds.
Money Market funds occupy the short-end of the debt mutual fund spectrum just above Liquid funds. SEBI defines them as funds with Macaulay duration up to 1 year, investing in money-market instruments. The slightly longer duration than Liquid funds captures additional yield with marginally higher interest rate sensitivity.
SEBI's definition
- Investment in money-market instruments.
- Macaulay duration up to 1 year.
- Money-market instruments include: T-Bills, Commercial Paper, Certificates of Deposit, Tri-Party Repo, etc.
Difference from Liquid funds
| Feature | Money Market | Liquid |
|---|---|---|
| Maximum maturity | 1 year | 91 days |
| Typical yield | 6.5-7.5% | 6-7% |
| Interest rate risk | Slightly higher | Very low |
| Liquidity | Same (T+1) | T+1 |
| Exit load | Typically none | Graded Day 1-6 |
The 9-month duration premium captures perhaps 30-50 bps of additional yield over Liquid funds.
Risk profile
- Interest rate risk: low. Duration of up to 1 year limits price sensitivity.
- Credit risk: low. Money market instruments are typically high-grade.
- Liquidity risk: minimal.
Returns
Typical money-market fund returns: 6.5-7.5% per year. Track money market rates closely.
Where Money Market funds excel
6-12 month parking
For known expenses 6-12 months out, money market funds outperform liquid funds in yield without meaningfully higher risk.
Working capital management
Corporate treasuries park operating cash that won't be needed for 3-9 months. Money market funds deliver slightly higher yield than liquid alternatives.
STP source for moderate-horizon equity entry
For a 6-12 month STP into equity, money market is slightly better than pure liquid.
Where they don't excel
- Immediate access requirements: liquid funds and overnight funds are slightly safer.
- Long-horizon investing: ultra-short and short duration funds may offer better risk-adjusted returns.
Tax treatment
Standard debt fund treatment. Slab rate post-2023 for new units.
Position sizing
For most investors, money market funds aren't strictly necessary. Liquid covers near-term parking; ultra-short covers 6-12 months; short duration covers 1-3 years. Money market sits between, somewhat redundant.
The category is more useful for institutional and corporate users with specific liquidity profiles.
Operational
- Standard SEBI cut-off times.
- Expense ratios typically 0.20-0.40%.
- No graded exit load (unlike Liquid).
The yield enhancement question
The 30-50 bps yield advantage of Money Market over Liquid:
- For a ₹10 lakh holding for 6 months: ₹1500-2500 of additional pre-tax interest.
- For a ₹50 lakh corporate position: ₹15,000-25,000.
The juice is meaningful at corporate scale; smaller at retail scale.
Comparison to Ultra-Short
Ultra-Short Duration funds (3-6 month duration) sit one step further out on the curve. They typically offer:
- 20-40 bps more yield than Money Market.
- Marginally higher duration risk.
- Similar liquidity.
For most 6-12 month parking, the choice between Money Market and Ultra-Short is essentially marginal.
The structural simplicity
The money market category exists to fill a specific operational niche. For most retail investors, the choice often comes down to which fund the chosen AMC offers competitive — Money Market or Ultra-Short. The differences are small.
Sources
- SEBI — Categorisation of Mutual Fund Schemes · accessed Jun 2026
- AMFI — Money Market Funds · accessed Jun 2026