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All short-term liquidity instruments dealing in cash and cash derivative funds constitute the money market funds. The basic requirement of these funds has to be that they need to be rated high by financial rating authorities in terms of authenticity and returns generated. The best quality of these funds is that they offer guaranteed returns and easily accessible devices. The types of money market funds are discussed in the next segment in further detail.
Types of Money Market Funds (150)
The funds offered in the money market are a piece of the bigger monetary market and comprise various more modest sub-markets like bills, acceptances, call money market, and so forth. Prime Money market fund bargains are not done in cash/cash equivalents, however different instruments like exchange bills, government papers, promissory notes, and so forth are utilized instead. Likewise, money market exchanges are not possible through dealers however must be done by mediums like conventional documentation, and oral or composed correspondence. These tools and devices can help an individual or institutional investor to navigate the market and choose the options that are best suited to their risk appetite and financial goals.
- Treasury Bills – Launched by the Central Government regulations, Treasury Bills are known to be one of the most secure prime money market instruments accessible. Nonetheless, treasury bills convey zero risk. Hence, the profits one gets from them are not alluring.
- Certificate of Deposits – A Certificate of Deposit or CD, capacities as a deposit receipt for cash that is saved with a financial association or a bank. Although, a Certificate of Deposit is not the same as a Fixed Deposit Receipt in two perspectives. The primary part of contrast is that a CD is just given for a bigger amount of cash. The second argument is that a CD is freely negotiable.
- Commercial Papers – Commercial Papers can measure up to an unstable momentary promissory note which is given by exceptionally rated organizations determined to raise funding to meet prerequisites from the market. CPs typically include a fixed developmental period which can go somewhere in the range of 1 day to as long as 270 days.
- Repurchase agreements – Repurchase agreements, or Reverse repo loans are short-duration contracts done between the buyer and the seller for the purpose of repurchase and sale transactions between them. These types of agreements can only be done between sellers and buyers that are registered with the RBI and have gained the right to utilize these instruments. Also, to note is the fact that there is a set type of documents that can be used only to authorize repurchase agreements. Approved securities like treasury bills, government securities and bonds launched by public sector undertakings can only be used for these transactions as per the RBI.
- Banker’s Acceptance – This is the equivalent of a futures contract in the government money market. This contract can only be authorized or honoured by a commercial bank in favour of an institutional investor. There are many components of a Banker’s Acceptance document that lists the terms of repayment, the period of repayment, the interest rate agreed upon and the mode of release of payment. These are set contractual devices that have to be presented to the RBI for their approval and can be used with industrial investors who want to use government money market funds. The Banker’s acceptance document is valid between 30 to 180 days.
The one thing to keep in mind when utilizing the types of money market funds is that these are low risk and short-term devices only. Any investor trying to make returns within the span of one year only should invest in these funds. Also, to note is that government money market funds work best in the scope of investing additional fund bases that have not been utilized in other investments or are the profits gained from alternative investments. If one needs to earn profits in the long run, then this form of the fund is not feasible.
Conclusion
Money market funds have no proper topographical area. It is a business opportunity for transient monetary requirements. Like working capital necessities. It has essential players like the Reserve Bank of India (RBI), business banks and monetary foundations like LIC, and so on. The primary money market instruments are Treasury bills, business papers, testaments of stores, and call cash. They are profoundly fluid as they have instruments in the development of under one year. The greater part of the currency market instruments provides fixed returns.
