June 07 , 2012
A money market mutual fund (also called Liquid Fund or Cash Fund) is an alternative to keeping cash in the bank. It is a type of mutual fund that invests in debt instruments of extremely short duration (often just a day or a week). It is typically used by companies that park their cash here to get slightly higher returns than a bank account. It offers the features of flexibility (the money can be redeemed at a day's notice at no cost or load), safety (the money is kept in very short term debt instruments and is very safe) and slightly higher return.
Liquid Funds can be used by individuals too; indeed some High Net-worth Individuals do use it to park cash. But in general, unless the amount of cash exceeds Rs. 20 lakh or so, the benefits of the Liquid Fund are not very apparent. After all, you would not use the Liquid Fund for parking money for much longer durations than a couple of months (you would use other debt funds or deposits instead).