Reserve Bank of India has initiated ‘Money Market Mutual Funds‘ during the year 2000 by which institutions can invest their funds for a period of 15 days in Money Market Mutual Fund (MMMF).
Functions of money market mutual funds?
Normally, money market deals in short-term funds, which were used for meeting working capital requirements. By providing a short period arrangement for investment in the money market, RBI has increased the scope of investment for short-term funds.
Money market mutual funds enables commercial banks and other institutions to lodge their unused funds even for a shortest period. In fact “Money at call and short notice” is an item in the Asset side of the commercial bank balance sheet which enables banks to invest their funds even for a short period of even 24 hours or 48 hours.
Money Market Mutual Funds also provides such an arrangement and mutual funds and commercial banks can lodge their short-term funds in it. But unfortunately, this fund has not found much support from private sector mutual funds. The main reason being there is no guarantee or protection for such a fund.
Generally, debt instruments will be backed by certain Asset structure, but the Money Market Mutual Funds does not have such an arrangement. Hence, there is lack of support for Money Market Mutual Funds from private sector mutual funds.