Money Market Mutual Fund

Even as the Mutual Funds show a promise of becoming a major instrument of household savings, another concept which is being talked about and waiting to make an entry into the Indian capital market is Money Market Mutual Funds (MMMFs). Though MMMF has taken a foothold in the West, almost a couple of decades ago, owing to a widespread and well-knit infrastructure and communications network, its arrival in India is fraught with procedural delays and conceptual difficulties.

Basically, the idea is to take advantage of the surplus funds lying with the Mutual Funds' institutions (LIC, UTI, banks, etc.) by investing them in the money market. This might serve two important purposes: one, individual savers may have access to the short-term capital market. Two, the MMMF may exercise its stabilizing influence on the volatile interest rates, particularly when liquidity pressure is high. In 1990, for instance, call money market rates had zoomed through the roofs owing to tight money conditions in the market.

Presently, Mutual Funds operate in the money market only to a limited extent owing to a number of restrictions imposed on them. They just manage to invest around 20 percent of their funds in the Money Market. A separate mutual fund to participate exclusively in the money market was hence thought of. This would help to increase the size of the mutual fund's investible resources in the money market and also allow an individual investor who hitherto stayed away from the money market to indirectly participate in the money market through MMMF.