NFO: Sundaram Money Market Fund to invest in low duration instrumentsSundaram Mutual Fund has announced a New Fund Offer (NFO) for Sundaram Money Market Fund. The NFO commenced on 12th September and will end on 26th September 2018. A money market fund invests in money market instruments with a maturity up to 1 year. As a result of its low maturity, a money market fund carries a low-interest rate risk and is ideal for a rising rates scenario. However these funds are vulnerable to credit risk, as the recent IL&FS default demonstrates.

A money market fund is a relatively unfamiliar beast in the Indian mutual fund industry. Investors have grown familiar with liquid funds and ultra short term funds, for their very short term needs. The next category they gravitate towards in terms of maturity of holdings is short term funds which have an average maturity of 1-3 years. The money market fund category was created by SEBI as part of its industry-wide reclassification exercise and differs from liquid and ultra-short term funds as follows:

Fund Category Type Fund Mandate
Liquid Funds Debt with maturity up to 91 days
Ultra-Short Duration Funds Macaulay Duration between 3-6 months
Low Duration Funds Macaulay Duration between 6-12 months
Money Market Funds Debt with maturity up to 1 year
Short Duration Funds Macaulay Duration between 1-3 years

Macaulay Duration is a complex financial concept. Roughly speaking, it is the no of years to go, till you get back the amount you invested in the fund.

Here are a few major money market funds. Many of these were existing funds in a related category which got reclassified as money market funds.

Fund 1 year returns 3 year returns 5 year returns
ICICI Pru Money Market Fund 7.08% 7.26% 7.93%
HDFC Money Market Fund 6.83% 7.05% 7.84%
Kotak Money Market Fund 7.07% 7.28% 7.8%

Data as on 15/09/2018. Source: Value Research

Sundaram Mutual Fund as an AMC is known more for its close-ended equity funds than its debt schemes. You can read our latest analysis of these, here. All its debt funds are rated three stars or less by Value Research. However many debt funds mainly used for doing Systematic Transfer Plans (STPs) into equity funds and in such a case, their returns are not the primary consideration. A systematic transfer plan typically moves a fixed amount from a debt fund into an equity fund every month. It is used to reduce the risk of lump sum investing and is similar to an SIP.

Sundaram Money Market Fund will invest in securities with maturity up to one year. It will be benchmarked to the Crisil Money Market Index. Siddarth Choudhary and Sandeep Agarwal are the fund managers for the scheme. They manage the vast majority of Sundaram Debt schemes between them. The minimum investment amount is Rs 1,000. The fund will offer growth and dividend (payout, reinvestment and sweep) options.

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This article is written by RupeeIQ editorial staff.