MONEY MARKET MUTUAL FUNDS (MMMFS)

The Government of India thought of introducing Money Market Mutual Funds (MMMFs) on Indian financial canvass in 1992. The aim of the Government was to develop the money market and to enable individual investors to gain from money market instruments since it is practically impossible for individuals to invest in instruments like Commercial Papers (CPs), Certificate of deposits (CDs) and Treasury bills (TBs) which require huge investments. The Government constituted a Task Force on MMMFs under the chairmanship of Shri D. Basu. 

The broad framework of guidelines in respect of MMMFs issued by RBI are as follows: 

• The investment by individuals and other bodies would be in the form of negotiable and transferable instruments and MMMF deposit accounts. 

• The minimum investments would be ` one lakh. 

•  The re-purchase would be subject to a minimum lock-in-period of 3 months. 

•  The funds will not be subject to reserve requirements as these will be invested in money market instruments.

•  Minimum of 20 per cent of funds will be invested in 182 days treasury bills. 

•  Maximum of 20 per cent of funds will be diverted to call money markets. 

Money market funds are generally the safest and most secure of mutual fund investments. The goal of a money-market fund is to preserve principal while yielding a modest return. Money-market mutual fund is akin to a high-yield bank account but is not entirely risk free. When investing in a money-market fund, attention should be paid to the interest rate that is being offered.