July proved to be a breakthrough month for money market funds in India as they attracted an unprecedented ₹44,574 crore in inflows, according to data from the Association of Mutual Funds in India. This made them the most preferred debt fund category, outpacing liquid and overnight funds by a significant margin. The surge is largely credited to their higher yield compared to similar short-term investment options and the perception of lower volatility in a liquidity-rich market.
At present, money market funds are offering yield-to-maturity levels close to 6.3 percent, comfortably above the 5.7 percent yields seen in liquid funds. Fund managers note that with surplus liquidity in the system, price fluctuations have been muted, making the segment attractive for corporates, high-net-worth individuals, and even conservative investors who value stability with a reasonable return.
In comparison, liquid funds received inflows worth ₹39,355 crore in July, while overnight funds saw ₹8,866 crore. The shift becomes even clearer when looking at June data, where money market funds recorded net inflows of ₹9,484 crore, while liquid funds faced outflows of ₹25,196 crore. This trend signals a clear shift in liquidity management strategies as investors lock into slightly longer maturities to secure better yields without taking on significant risk.
By the end of July, assets under management for the money market fund category stood at ₹3.37 lakh crore. These funds invest in debt and money market securities with maturities of up to one year, compared to liquid funds which limit maturities to 91 days. This longer investment horizon allows them to capture better interest rate opportunities while still maintaining liquidity and relatively low risk.
Industry experts believe that this preference shift could sustain over the coming months. Puneel Pal, Head of Fixed Income at PGIM Mutual Fund, explained that portfolio yields for money market funds are currently higher than those of liquid funds, making them more attractive for liquidity management. Marzban Irani, CIO-Fixed Income at LIC Mutual Fund, added that tighter liquidity last December had boosted returns for these funds, and while RBI’s measures later eased the situation, the higher yields persisted, drawing more inflows.
Debt funds overall had a strong month, recording the highest net inflows of the current financial year at ₹1.07 lakh crore, with the segment’s assets under management reaching ₹18.76 lakh crore. Experts anticipate that money market funds will continue to benefit from steady demand, particularly since the interest rate cycle appears to be nearing its end. Large rate cuts are unlikely, meaning investors can expect stable returns with the advantage of short duration exposure.
The momentum in money market funds is a reflection of how investors are adapting to evolving market conditions by seeking a balance between return and safety. As long as yields remain competitive, the category is likely to remain a favourite for those managing significant cash flows.
Stay ahead in understanding the latest investment trends and strategies. Follow You Finance on Instagram and Facebook for in-depth market insights, expert tips, and the latest updates from the world of finance.
