Money Market Funds Emerge as Attractive Bet for Investors in Softening Rate Cycle: Tata AMC

Bhubaneswar – With interest rates on a downward trajectory, money market funds are gaining traction as a prudent choice for investors looking to balance returns, safety, and liquidity. These funds, known for their short-duration and high-quality holdings, are well-positioned to benefit in a softening interest rate environment.

The Reserve Bank of India (RBI) earlier this month frontloaded its monetary policy easing, slashing the repo rate by 50 basis points to 5.5%. In a surprise move, it also reduced the Cash Reserve Ratio by 100 basis points to infuse liquidity and stimulate credit growth. As deposit rates begin to soften in response, money market funds offer a compelling alternative to traditional fixed deposits for parking short-term surplus cash.

“As we enter a phase of front-loaded policy easing, money market funds present a smart allocation option for investors. With the repo rate now at 5.5%, investors can potentially earn 50–75 basis points over the repo in money market funds, while maintaining liquidity and limiting volatility,” said Amit Somani, Deputy Head – Fixed Income, Tata Asset Management.

Money market funds invest in instruments such as Treasury bills, commercial paper, and certificates of deposit, offering a balance of stability and yield. According to the Association of Mutual Funds in India (AMFI), the category received cumulative inflows of Rs 42,730 crore in April and May 2025, underscoring investor confidence in the product. Reflecting this trend, the Tata Money Market Fund recorded inflows of Rs 244.64 crore from Bhubaneshwar in the last two months. In fact, in FY25, investments from the city soared to Rs 570.02 crore from Rs 32.05 crore in FY24, contributing to the fund’s milestone of Rs 30,000 crore in assets under management (AUM).

The Tata Money Market Fund’s performance is anchored in disciplined duration management and a focus on high-credit quality issuers. As short-term rates continue to ease, such funds present a strong case for inclusion in both strategic and tactical asset allocation strategies.

While both liquid and money market funds serve short-term needs, the latter with maturities extending up to 6–9 months, may offer slightly better yields for investors with a short- to medium-term outlook. Choosing between them depends on the investor’s time horizon and risk appetite, but both remain attractive tools in the current policy landscape.