Money Market Funds Vs. Government Treasury Bills | Where to Invest?3 min read
In this article, we will discuss and differentiate between Money Market Funds and Government Treasury Bills in 10-pointers. So, let’s start.
1) Minimum Investment:
- In Money Market Funds, the minimum investment required is Rs. 1,000 and multiples.
- While Government Treasury Bills require a minimum investment of Rs. 10,000 and multiples. Earlier, before the introduction of RBI’s Retail Direct Scheme, the minimum investment in the Government Treasury Bills was Rs. 25,000 and multiples.
2) Lock-In and Exit Load:
- There is no lock-in period in Money Market Funds. But here, several funds have a very low exit load of just 0.1%, that too if the investor exits from the fund before 3-4 days.
- The Lock-In period of Government Treasury Bills is already stipulated as 14 days, 91 days, 182 days, and 364 days.
- Money Market Funds are highly liquid as the money invested in these funds can be withdrawn the next day of investment.
- While Government Treasury Bills are less liquid as compared to Money Market Funds, as they have a certain lock-in period of 14 days, 91 days, 182 days, and 364 days.
- Money Market Funds cannot be traded.
- In the case of Government Treasury Bills, under the new provisions of the RBI Retail Direct Scheme, the bills can be traded. Since these bills have a certain period, selling funds before maturity can impact the returns of the investor.
- The Money Market Funds have minor expense ratios ranging from 0.1% to 0.5%.
- Whereas the Government Treasury Bills do not have any expense ratio only if the person is investing via RBI Retail Direct Scheme.
- Both the funds have had similar kinds of returns in the past. But the returns are subject to change in the market condition.
- The returns of money market funds generally range from 4% to 6% while Government Treasury Bills returns are between 5%-6%. Here, specifically in the case of Money Market Funds, the returns also depends upon the period invested.
- In Money Market Funds, the risk involved is:
- Interest-Rate Risk: Fluctuation of the interest rates by the RBI.
- Default Risk: The fund house might default the payment at the time of maturity.
- Manager Risk: A non-experienced manager handling a fund can result in a lower return.
- The Government Treasury Bills have only one risk involved i.e., Interest Rate Risk.
- If any person holds money market funds for less than 3 years, then the gains from these funds are taxable as Short Term Capital Gains and as per the tax slab. If the fund is held for more than 3 years, then the capital gain will be considered as Long-Term Capital Gain (LTCG) and will be taxed at 20% along with indexation benefits.
- The benefits in Government Treasury Bills will be under Short Term Capital Gain (STCG) and will be taxable as per the tax slab of the individual.
9) Maturity and Roll Over:
- In Money Market Funds, the maturity period of the fund depends upon the individual. While in the case of Government Treasury Bills, there is already a certain maturity period like 14 days, 91 days, 182 days, and 364 days.
10) Who Should Invest?
- Investment in Government Treasury Bills or Money Market Funds is suitable for those individuals or investors who wish to park their extra income/wealth for a shorter period. Since these instruments are less risky, it is also a good investment option for low-risk investors.
What Should Investors Do?
These instruments Government Treasury Bills or Money Market Funds are better savings as well as an investment option as compared to park funds in the saving account which yield lesser interest rates and are unable to beat inflation. Between these instruments, Money Market Funds are more flexible as compared to Government Treasury Bills, and hence investor who opts for more flexibility in their investment for a shorter period, then he/she should look after money market funds. Do follow due diligence before making any investment decision.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.