Money Market Mutual Funds

A money market fund may buy money market instruments that mature within 1 year. That is SEBI's rule for the category. SEBI's own name for it is Money Market Fund, the same as ours.

A mutual fund pools cash from many investors; a professional manager then puts it to work under SEBI rules. This one is a debt fund. Its money goes out as loans to the government, banks and companies, made by buying bonds and similar paper from them.

Money market instruments are the short-dated end of that paper. SEBI's regulations say the term includes:

• commercial paper, short-term borrowing by companies;
• certificates of deposit, short-term borrowing by banks;
• treasury bills (T-bills), short-term government paper;
• government securities (G-secs) with no more than one year left before repayment;
• call or notice money;
• commercial bills, usance bills, and other like instruments the Reserve Bank of India specifies.

SEBI's wording is “includes”, so the list is open rather than complete.

Two more limits apply. At least 10% of net assets, the fund's total value, must sit in liquid assets. Those are cash, T-bills, G-secs and repo on G-secs (short loans backed by government securities).

The second limit is on sectors. A debt fund may put no more than 20% of net assets into any one sector. Some holdings don't count towards that cap, including bank certificates of deposit, G-secs, T-bills and short-term deposits with scheduled commercial banks.

Money market funds are open-ended schemes. You can sell your units, your share of the fund, whenever you choose. There is no lock-in, a period when you cannot sell at all.

A money market fund may hold instruments maturing within 1 year; a liquid fund only those maturing within 91 calendar days. That limit on how long holdings may run is the biggest difference.

The cash rule differs too. A liquid fund must hold at least 20% of net assets in the same liquid assets listed above. That is double the 10% a money market fund needs. Overnight funds are exempt from this liquid-assets rule altogether.

Two features belong to other short-term funds by SEBI's rule, not to this one:

• The graded exit load. An exit load is a charge for selling within a set time after you buy. Liquid funds must charge one on exits within 7 calendar days. It starts at 0.0070% of what you take out on day 1 and falls to nil from day 7. Money market funds carry no such duty. Any exit load a money market fund has is set in its own scheme document, the fund's official rulebook.
• Instant access. SEBI allows the Instant Access Facility only in overnight and liquid schemes. It pays part of a redemption on the same day. A money market fund cannot offer it.

Overnight funds aren't required to charge the graded load either, and usually carry no exit load.

Selling units back to the fund is called redemption. A money market fund has up to 3 working days to pay you, under SEBI's standard payout rule.

One thing liquid and money market funds share: both value their holdings at market prices supplied by valuation agencies. So the unit price of each can rise or dip from one day to the next.

Most listed money market funds read Low to Moderate on 29 September 2026; the rest read Moderate. Those are the second and third of six levels on the riskometer, the six-level risk label every fund must display and re-check monthly.

For a debt fund, SEBI's formula scores three kinds of risk and averages them:

• credit risk, the risk that a borrower is late with, or misses, repayment. Government securities and paper with the top credit rating, AAA, score 1; the next grade, AA+, scores 2; lower ratings score more;
• interest-rate risk, the chance a shift in rates changes what the fund's bonds are worth;
• liquidity risk, the chance the fund can't sell a holding fast at a fair price. If this score is higher than the average of the three, it is used instead.

The interest-rate score follows the portfolio's Macaulay duration, roughly the average time until the fund is repaid. Up to half a year scores 1; half a year to one year scores 2. With every holding maturing within a year, the interest-rate part of the score stays near the bottom of the 1-to-6 scale.

The credit side depends on whose paper the fund holds. An average above 1 and up to 2 maps to Low to Moderate. Above 2 and up to 3 maps to Moderate.

The unit price is not fixed either. Every money market and debt holding is valued at the average of prices from valuation agencies. That is a market price, so the NAV, the price of one unit, moves daily.

A fund's level can also change. Each fund re-checks its riskometer every month and publishes it within 10 calendar days of month-end. When a scheme's level changes, investors must be told by email or SMS as well as a public notice.

Koshex is an AMFI-registered distributor (ARN-154632): a registered firm that helps you buy and manage funds. We review what you hold over time and tell you when a fund's risk level or category shifts.

Koshex suggests a money market fund for money you expect to need within about a year. That horizon is our suggestion, not a SEBI rule.

If you might need the cash within days, the rules point elsewhere. Only liquid and overnight funds may offer same-day instant access. A money market redemption can take up to 3 working days to reach you.

A goal many years off sits outside what this category is built for. Its holdings all mature within a year, which matches a short timeline, not a long one.

Don't expect a straight line, either. Some funds here read Moderate, not Low to Moderate, and prices move daily with the market.

Koshex helps you choose a fund that suits your goal and timeline. The first thing we ask about is the month you want the money back.

If you bought your units on or after 1 April 2023, each gain is charged at your slab rate, however long you held them. Slab rate means the rate on your normal income. That follows from section 76 of the Income-tax Act, 2025.

Under that section, a money market fund is a Specified Mutual Fund. It qualifies because debt and money market instruments make up more than 65% of it.

Your holding period runs from the day you buy a unit to the day you sell it. For those newer units it changes nothing. Each gain counts as a short-term capital gain, the tax term for profit on units sold within the holding-period line.

Older units follow the older line. For units bought before 1 April 2023 and sold within 24 months of purchase, the gain is short-term and taxed at slab rate. Held longer, it is a long-term capital gain, taxed at 12.5% without indexation, meaning no inflation adjustment to your purchase price.

Take an assumed gain, not a forecast. Suppose you sell units for ₹36,000 more than you paid. Cess adds 4% on top of the tax. We assume no surcharge: that is a further charge on the tax itself, and it applies only when total income passes ₹50 lakh.

• Units bought in June 2025, after the 1 April 2023 cut-off, top slab 20%: ₹7,200 in tax plus ₹288 cess, so ₹7,488.
• The same units at a top slab of 30%: ₹10,800 in tax plus ₹432 cess, so ₹11,232.
• Units bought in January 2023 and sold in September 2026, more than 24 months later: 12.5% is ₹4,500, plus ₹180 cess, so ₹4,680.

No TDS, tax the fund takes out before paying you, applies when a resident redeems.

IDCW works differently. It is a payout from the fund's income or gains, and the NAV falls by the amount paid. IDCW is added to your income and taxed at your slab rate. Once IDCW goes above ₹10,000, 10% TDS is deducted first. TDS is credited against your tax for the year; if it exceeds your final tax, the difference is refunded. Pick the growth option and nothing is paid out.

Compare four things across the list: 3-year and 5-year CAGR, the riskometer, the expense ratio and AUM. Koshex lists 24 money market funds. The table on this page shows the top 10 by whichever ranking you choose. Of the 24, 23 have a 3-year record, so only these are ranked on 3-year return and counted in the averages.

In more detail:

• 3-year and 5-year CAGR. CAGR means average yearly growth over the period, as if the fund had moved at an even pace. The category averages stand at 6.8% for 3 years and 6.8% for 5. Both describe the past.
• Riskometer. Read it beside any return figure. A return on its own says nothing about the risk level a fund sat at to earn it.
• Expense ratio. This is the yearly fee, a percentage of your money deducted from the fund's value. Of two funds earning the same before fees, the cheaper one leaves you more.
• AUM. Assets under management is what everything a fund holds is worth today, not what investors paid in. The listed funds hold ₹3,27,455 Cr between them.

The exit load isn't in the table. Each money market scheme sets its own, if it has one, so check the scheme document before you buy.

Either can work; it depends on how your money arrives. A sum you already have, set aside for a known date, often goes into the fund in one go. That is a lumpsum: one bigger payment, made at a single time.

A SIP, or systematic investment plan, puts in the same sum on a schedule, usually once a month. It can build up a pot month by month for a date later in the year.

For tax, each purchase stands on its own. Each SIP instalment buys units at the NAV of its own day and starts its own holding period. Anything you buy today is dated well after 1 April 2023. Its gain will be taxed at your slab rate whenever you sell.

When the date comes, the fund has up to 3 working days to pay you. Koshex suggests placing the sale a few working days before you need the cash.