A Money Market Fund (MMF) is a debt mutual fund that exclusively invests in short-term, high-quality money market instruments with a maturity of up to 1 year. These instruments include:
Treasury Bills (T-Bills) — Government of India short-term paper (91-day, 182-day, 364-day)
Certificates of Deposit (CDs) — Time deposits issued by banks and financial institutions
Repos and Tri-party Repos (TREPs) — Short-duration collateralised borrowing
Because all instruments mature within a year and the portfolio is highly diversified, money market funds carry very low credit risk and virtually no interest rate risk.
MMF vs Liquid Fund:
Liquid funds can hold instruments up to 91 days maturity. Money market funds hold instruments up to 1 year. This slightly longer duration gives MMFs marginally higher returns than liquid funds (typically 20–50 bps extra) while remaining extremely stable.
Fund Profile: Money Market Funds
Parameter
Details
SEBI Category
Debt — Money Market Fund
Instrument Maturity
Up to 1 year only
Minimum Credit Quality
A1+ (highest short-term rating) for money market instruments
Risk Level
Low (Riskometer: Low to Moderate)
Ideal Holding Period
3 months – 1 year
Tax Treatment
Added to income, taxed at income slab rate (post Apr 2023)
Exit Load
Usually Nil
Benchmark
Nifty Money Market Index B-I
Money Market Fund — AUM Trend
Period
Category AUM
No. of Funds
YoY Change
Mar 2022
₹98,400 Cr
19
—
Mar 2023
₹1,12,600 Cr
20
+14.4%
Mar 2024
₹1,48,200 Cr
20
+31.6%
Mar 2025
₹1,72,800 Cr
21
+16.6%
Jun 2026*
₹1,80,000 Cr
21
+4.2% (YTD)
Asset Allocation — Typical MMF Portfolio
Instrument
Typical Allocation
Credit Quality
Treasury Bills (T-Bills)
30–45%
Sovereign (Highest)
Certificates of Deposit (Bank CDs)
20–35%
AA+ to A1+
Commercial Papers (CPs)
15–25%
A1+ only
TREPs / Overnight Collateral
5–15%
Sovereign collateral
Trailing Returns — Money Market Fund Category
Period
Category Avg.
Best Fund
Worst Fund
Savings A/c
1 Week
0.14%
0.16%
0.12%
0.07%
1 Month
0.57%
0.61%
0.52%
0.29%
3 Month
1.74%
1.82%
1.61%
0.88%
6 Month
3.52%
3.68%
3.28%
1.75%
1 Year
7.18%
7.52%
6.74%
3.50%
3 Year
6.42%
6.88%
5.91%
3.50%
MMF vs Other Short-Term Options
Option
1-Yr Return
Risk
Liquidity
Min. Investment
Money Market Fund
7.0–7.5%
Very Low
T+1 to T+2
₹1,000
Liquid Fund
6.5–7.0%
Very Low
T+1 (instant up to ₹50K)
₹500
Bank FD (1 year)
6.5–7.1%
Very Low
Penalty on premature
₹1,000
Savings Account
3.0–3.5%
Negligible
Instant
Varies
Arbitrage Fund
6.9–7.5%
Very Low
T+2 to T+3
₹1,000
Key Advantages of Money Market Funds
Capital preservation — T-Bill and A1+ CP focus ensures near-zero default risk
Better than savings accounts — 2–3x higher returns with similar accessibility
No lock-in — unlike FDs, no premature withdrawal penalty
SIP friendly — automate surplus parking from salary every month
Scalable — efficient for large corpuses (HNIs and corporates use heavily)
Taxation Note (Post April 2023):
Gains from money market funds are now taxed at your income slab rate regardless of holding period. The old 20% LTCG with indexation (for >3 year holdings) has been removed. This makes MMFs less tax-efficient than arbitrage funds for investors in the 30% tax bracket holding for >3 months.
*All returns and AUM figures are illustrative estimates based on historical category averages. Past performance is not indicative of future results. Tax treatment is subject to change. Not investment advice. SampathaSetu is an AMFI Registered MFD (ARN-358080).