Fund categories, explained
Money market funds
for cash you won’t need for months.
A money market fund lends for up to a year, to the government, banks and large companies. It suits money you won’t touch for a few months to a year.
6.1% over the past year
The typical (median) return of 22 regular-plan funds, all fund houses
- Typical, 3 years
- 7.0% a year
- Typical, 5 years
- 6.4% a year
- Funds counted
- 22
The basics
What is a money market fund?
Invests in money market instruments maturing in up to one year.SEBI’s definition of the category
What it holds
- Treasury bills issued by the government
- Certificates of deposit issued by banks
- Commercial paper issued by companies
Who it can suit
- A business’s surplus that won’t be needed for three to twelve months
- Money set aside for a known payment later in the year: advance tax, a fee, a purchase
Comes up most in Corporate Treasury
Side by side
Money market funds or an FD?
Neither is better in general. It depends on when you need the money and what you can live with along the way.
| Compare | Money market fund | Fixed deposit |
|---|---|---|
| Return | Moves with short-term rates | Fixed for the term |
| Tax | Only when you sell, at your slab rate | Interest taxed every year, at your slab rate |
| Getting it out | Usually within one or two business days | Breaking it early usually costs interest |
| Safety | Not guaranteed or insured; short loans, some value movement | Insured up to ₹5 lakh per bank (DICGC) |
Before you invest
Risks, tax and getting your money out.
The risks, plainly
- Lending for up to a year means more movement in value than a liquid fund when interest rates change.
- Not guaranteed. A borrower defaulting can reduce the fund’s value.
- Each scheme shows its riskometer and Potential Risk Class; check both before you invest.
How it’s taxed
Gains are taxed at your income-tax slab rate when you sell, however long you have held the units (for units bought from April 2023). There is no tax while you hold them: unlike FD interest, nothing is taxed until you redeem.
Tax rules change with budgets. We go through the current position with you and your CA.
Getting your money out
- Redemptions usually reach your bank within one or two business days.
- Many money market funds charge no exit load; check the scheme’s documents.
Typical returns
What the category has returned.
The median return of every money market fund's regular plan, across all fund houses, from AMFI’s published NAVs as of 30 October 2026. Half the funds did better, half did worse.
Over 1 year
6.1%
Median of 22 funds
Over 3 years, a year
7.0%
Median of 21 funds
Over 5 years, a year
6.4%
Median of 17 funds
Regular plans, growth option, which include the distributor’s commission. Returns over a year are yearly averages (CAGR). Past returns of a category, not a recommendation of any scheme: past performance may or may not be sustained in future, and what suits you depends on your goals and a suitability check. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
FAQs
Your questions about money market funds.
Money market fund or liquid fund?
Can a money market fund fall in value?
How are money market funds taxed?
Can a company invest in a money market fund?
Money market fund or ultra short duration fund?
Is there an exit load on money market funds?
Fund categories
Compare it with similar categories.
New to mutual funds? Mutual funds, explained
Your next step
Know your money will do what you need it to.
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