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Invest in Top Money Market Mutual Funds In 2022: High Return Mutual Funds In India

Looking to Invest in Top Money Market Mutual Funds? Here is a list of Top Money Market Mutual Funds. Learn about various factors such as returns, risks and taxation associated with Money Market Mutual Funds.
38_Money Market MF in India (1)

Some investors have a conservative risk profile. For them, the safety of their capital is more important than the returns earned on it. They are not willing to take any risk, so they have to be content with low to moderate returns. For such investors, mutual fund houses offer some debt mutual funds with low risks, such as overnight funds, liquid funds, money market funds, etc. This article focuses on how to invest in top money market mutual funds in 2022.

What is a money market fund?

A money market mutual fund is an open-ended fund that invests in money market instruments with a maturity of up to one year. A money market mutual fund manager collects the money from investors and invests it on their behalf in short-term fixed-income securities. The securities selected for investment have high credit ratings and liquidity. 

The returns given by these funds are low to moderate. The fund manager aims to protect investors' capital rather than generate returns on it. Money market mutual funds are suited for investors with a conservative risk profile.

Returns given by money mutual funds

Let us look at the returns given by some of the best money market mutual funds.

Scheme nameAUM (Rs. crores)1-year
(Absolute returns)
3-years
(CAGR returns)
5-years
(CAGR returns)
Edelweiss Money Market Fund3783.82%7.47%6.96%
Aditya Birla Sun Life Money Manager Fund17,1974.11%6.09%6.68%
L&T Money Market Fund9583.52%5.77%6.61%
Franklin India Savings Fund9543.86%5.94%6.59%
SBI Savings Fund25,0973.98%5.95%6.56%

(Source:https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/money-market-fund.html)

Note: The returns are as of 17th Feb 2022. The returns are for direct plans with growth option

Who should invest in money market mutual funds?

Money market mutual funds are ideal for investors who are averse to taking any risks. Investors who have a conservative risk profile and are happy with low to moderate returns can consider investing in money market mutual funds. Investors who have received a lumpsum amount and need to park it for a short duration until they figure out how to invest it for the long term can consider parking it in a money market fund.

Taxation of money market funds

Money market mutual funds are a subcategory under the broader category of debt mutual funds. Hence, the taxation of money market mutual funds is similar to that of debt funds. The taxation of money market mutual funds is as follows:

Short-term capital gains (STCG) tax

  • If you sell units of your money market mutual fund within 3 years of purchase, the short-term capital gain (STCG) will be applicable. It will be added to your overall income and taxed as per the income tax slab that you fall in. 

Long-term capital gains (LTCG) tax

  • If you sell money market mutual fund units after 3 years of subscription, long-term capital gain (LTCG) will come into effect. A 20% LTCG with indexation benefit will be levied or 10% without indexation.

Risks involved in money market mutual funds

Money market mutual funds invest in fixed income securities such as treasury bills issued by the central Government, certificate of deposit (CD) issued by banks, commercial paper (CP) issued by corporates, repo agreements, etc. All these fixed-income securities have high credit ratings. Hence, the credit risk of default is very low in these instruments. 

However, these instruments deliver low returns. So, returns from money market mutual funds may or may not be able to beat inflation. If they are not able to beat inflation, then the real returns will be negative from these mutual funds.

Return potential from money market mutual funds

The table in the above section shows the best money market mutual funds have delivered 6.5 to 7% CAGR returns in the last five years. These are low to moderate returns. If you plan to invest in money market mutual funds to fulfil your financial goals, it will be difficult. You can invest in money market mutual funds for the short term when you have received a lumpsum and still figuring out where to invest it for the long term. For such short-term investments, the safety of capital is more important than generating returns on it.

Advantages of investing in money market mutual funds

The biggest advantage of investing in money market mutual funds is the safety of capital. A money market mutual fund manager is more focused on capital protection than generating returns. So, money market mutual funds are relatively safer than many other debt mutual funds and equity mutual funds. Money market mutual funds also have the advantage of liquidity as they invest in short-term fixed-income instruments with a maturity of up to one year.

Reasons for investing in money market mutual funds

There are two major reasons for any individual to invest in money market mutual funds:

If you have a conservative risk profile

  • You may consider investing in a money market mutual fund if you have a conservative risk profile. These funds are relatively safer than many other debt funds. You will have the safety of capital and liquidity by investing in a money market mutual fund. However, please remember that the returns will be low to moderate. The returns may or may not be able to beat inflation.

If you have received a lump sum and want to park it for the short term

  • If you have received a lump sum amount and are looking to park it somewhere for the short term, you may consider parking that lumpsum in a money market mutual fund. Once you figure out where to invest that lump sum for the long-term, you may redeem your money market mutual fund units and proceed with your long-term investment plan.

Conclusion

Money market mutual funds are a good financial product for investors with a conservative risk profile. If your priority is the safety of capital and liquidity over returns, you may consider investing in money market mutual funds.

To start investing in money market mutual fund schemes as per your appropriate asset allocation, download the Glide Invest App from Google Play Store or Apple App Store and get started.

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