A money market fund is a type of open ended debt fund that invests solely in money market instruments. Money market instruments are fixed income securities like treasury bills, certificate of deposits and commercial papers and term deposits, which have very short term maturities and are highly liquid. The objective of money market mutual funds is to provide investors an opportunity to earn returns, without compromising on capital safety and liquidity of the investment. Typically money market mutual funds invest in money market securities that have a residual maturity of ranging from few days to at most few months. This helps the fund managers of liquid funds in meeting the redemption demand from the investors. Money market mutual funds are mainly used by institutional investors for parking money from time to time. Money market mutual funds, also known as Liquid funds, are also offered to retail investors to park their cash on a short term basis. While the terms money market mutual funds and liquid funds are used interchangeably, there are two kinds of money market mutual funds.

Liquid Funds:

Liquid funds are money market mutual funds and invest primarily in money market instruments like treasury bills, certificate of deposits and commercial papers and term deposits, with the objective of providing investors an opportunity to earn returns, without compromising on the liquidity of the investment. Typically they invest in money market securities that have a residual maturity of less than or equal to 91 days.

Ultra Short Term Bond Funds:

Ultra short term bond funds invest in money market instruments that mature in 6 to 12 months. Longer average maturities, enable ultra short debt funds get higher returns than liquid funds. However for the same reason, the volatilities of the short term debt funds are also slightly higher than liquid funds.