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Friday, May 27, 2011

Money Market Funds or Liquid Funds

Money Market Funds are open-ended fund schemes which invest in short term debt securities like Treasury Bills, Certificate of Deposits, and Commercial Papers etc. with maturity not above 91 days.
Money market fund schemes provide a platform for investors to invest in low risk, low return, and cash-equivalent assets.
Soul aim of Money Market Fund scheme is capital protection accompanied by modest dividends. As these funds invest in very liquid assets, these funds are also called liquid funds.
Expense ratio of liquid funds is generally less than .5 percent.
Liquid funds are suitable for those who want to park big amount of money for short period of time.
Comparison with Fixed deposit schemes
Returns on liquid funds are generally 1-1.5 % more than Fixed Deposit rate. Income on FD is added to investors’ income while dividend of Liquid Funds is tax-free in the hands of the investors. This makes liquid funds much suitable for HNI’s falling in the highest tax bracket.
Like FMP, only negative thing about Liquid Funds is return is not guaranteed and depends on the market performance.


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