Define Money Market Mutual Funds

In April 1991, Money Market Mutual Funds (MMMFs) were introduced in India. They provide an additional short term investment avenue to investors and bring money market instruments within the reach of individuals.

A money market mutual fund is a fund that invests solely in money market instruments. Money market instruments are forms of debt that mature in less than one year and have high liquidity. Treasury bills make up the bulk of the money market instruments. Securities in the money market are relatively risk-free and most secure mutual fund investments. Its aim is to preserve principal while yielding a modest return. It is similar to a high-yield bank account but is not entirely risk free. Investor should concentrate on the rate of interest.

Types of Money Market Mutual Funds

Institutional Money Market Mutual Funds

These funds are held by governments, institutional investors and businesses etc. Huge sum of money is parked in institutional money funds.

Retail Money Market Mutual Funds

Retail money market funds are used for parking money temporarily. The investment portfolio of money market funds comprises of treasury bills, short term debts, tax free bonds etc.Special Features of Money Market Mutual Funds

Money market mutual funds are one of the safest instruments of investment for the retail low income investors. The assets in a money market fund are invested in safe and stable instruments of investment issued by governments, banks, corporations etc.

Generally, money market instruments require huge amount of investments and it is beyond the capacity of an ordinary retail investor to invest such large sums. Money market funds allow retail investors the opportunity of investing in money market instrument and benefit from the price advantage.

Money market mutual funds are usually rated by the rating agencies.