Axis Money Market Fund: A good short term fixed income investment

What are money market funds?

Money market funds are debt mutual schemes which invest in debt and money market instruments with residual maturities of up to 1 year. Money market funds usually invest in commercial papers (CPs), certificates of deposits (CDs), Treasury Bills, overnight securities (TREPs) etc. They can also invest in debt market instruments whose residual maturity is less than a year. The interest risk of these funds is moderately low since their maximum maturities are up to 1 year.

To know more, read all you wanted to know about Money Market Funds

Why invest in money market funds?

• Money market funds are useful for parking your idle funds for a period of 1 – 2 years.


• Yields of money market funds are usually higher than interest rates of traditional fixed income investments like bank fixed deposits of comparable tenures.


• Since the interest rate risk of money market funds are relatively low, they can be good investment options of investors with low to moderately low risk.


• Money market funds can be good short term investment options inrising interest rate environments.


• Money market funds can also used as source funds for Systematic Transfer Plans (STPs) to equity funds in volatile markets.

Who should invest in Axis Money Market Fund?

• Investors looking for stable income in the short term (1 – 2 years)


• Investors with moderately low risk appetites


• Investors with minimum 1 – 2 years investment horizon

In this article, we will review one of the best performing money market funds, Axis Money Market Fund.

Axis Money Market Fund

Axis Money Market Fund was launched about 3 years back and has around Rs 3,878 crores of assets under management. The expense ratio of the scheme is just 0.36%. The scheme has given 5.09% returns since inception (see the chart below).

Source: Advisorkhoj Research (as on 25^th August 2022)

Strong Credit Quality

Credit risk is always a concern in debt funds. Though credit is very low to low in money market instruments like T-Bills, TREPs and certificates of deposits (CDs), commercial papers (CPs) which constitute a large portion of the portfolio of money market funds are subject to credit risk. Axis Money Market Fund invests in the highest quality papers. 9.3% of the portfolio is invested in Government Securities and State Development Loans (SDLs), which enjoy sovereign or quasi sovereign status. Another 10% of the portfolio is invested in T-Bills (sovereign status) and TREPs (which are backed by G-Secs). So nearly 20% of the portfolio has virtually no credit risk.

21% of the portfolio of Axis Money Market Fund is invested in Certificates of Deposits (CDs), all rated A1+. A1+ is the highest credit rating for money market instruments (i.e. fixed income instruments of maturities less than 1 year). 59% of the portfolio of Axis Money Market Fund is invested in Commercial Papers (CPs), which usually give higher yields than CDs. All the CPs in Axis Money Market Fund portfolio are rated A1+ (higher credit rating for money market instruments. As such, the credit quality of Axis Money Market Fund is very high.

Source: Axis MF Factsheet, Advisorkhoj Research (as 29^th July 2022).

Yields are attractive

Interest rates have been rising as the Reserve Bank of India aims to rein in inflation. The RBI has already increased interest rates by 150 bps till date (as on 19^th August 2022). The RBI Governor has indicated that further rate hikes are likely since inflation is still on the higher side. Rise in interest rates have been pushing short term yields higher. The yield of the 91 day T-Bill is 5.59%, while yields of the 182 and 364 day T-Bills are 5.96% and 6.26% (source: RBI, 12^th August 2022). The yield to maturity of Axis Money Market Fund portfolio is 6.2% (as on 29^th July 2022).

Why invest in Axis Money Market Fund?

• The global economy has been in the grip of high inflation for a fairly long time now, due to extraordinary fiscal and monetary stimuli provided by Governments and Central Banks during the COVID-19 pandemic, supply chain disruptions caused by lockdowns during the pandemic and geo-political events namely, Russian invasion of Ukraine and economic sanctions on Russia.


• Though central banks around globe, primarily the US Federal Reserve, initially viewed the inflation as transitory caused by COVID led disruptions, both the Fed and RBI are now making inflation a priority in their monetary policies – both Fed and RBI have adopted a hawkish policy stance and have been raising interest rates


• Rising interest rates have pushed short term debt and money market yields higher (as discussed in the previous section). Higher short term yields make Axis Money Market Fund more attractive investment options for investors with 1 – 2 year investment tenures compared to traditional fixed income investments like FDs; money market yields are significantly higher the FD interest rates of 1 – 2 year term deposits of leading public and private sector banks.


• Global commodity prices have showing signs of cooling off for the last few months. The US CPI inflation data in July was flat after 25 consecutive months of rising inflation. If the trend continues we may see a revision in US Fed monetary policy stance and end to the interest rate tightening cycle in the coming months / quarters.


• The US GDP has shrunk in the past 2 quarters raising concerns of possible recession in the US. If the US economy goes into slowdown / recession, the Fed will have to reverse its interest rate stance and start reducing interest rates. The RBI may follow suit.


• Since we are approaching the peak of this interest rate cycle, investors can lock in the higher yields by investing in Axis Money Market Fund. However, you need to have investment horizon of 1 – 2 years to benefit from higher yields.


• The average maturity profile of Axis Money Market Fund is 4 – 5 months. So interest rate risk is fairly low. If yields rise in the near future, the fund can re-invest the maturity proceeds of maturing instruments during this period at higher yields. This can increase your returns.


• The credit quality of Axis Money Market Fund is very high. The entire portfolio is in sovereign or highest credit quality debt and money market instruments.

Investors should consult with their financial advisors if Axis Money Market Fund is suitable for their investment needs.