Even as the equity markets heave a sigh of relief over the uncertainty around the US trade deal after both countries reached an agreement, closely following the India-EU pact, the bond markets haven’t had it that easy over the past couple of months.

As FPI outflows continued and the domestic currency fell against the dollar, the RBI sought to shore up the rupee and maintain adequate liquidity in the banking system.

However, a high credit deposit ratio (82.2 per cent as of Jan 15, 2026), record cash in circulation (₹39.8 lakh crore), GST/advance tax outflows in December 2025 high RBI yield cutoff due to heavy short-term T-bill supply have resulted in a spike in short-term yields.

In late January, the call rate touched 5.65 per cent, higher than the repo rate of 5.5 per cent due to the relatively tight liquidity scenario.

Three-month certificates of deposits (CDs) and commercial papers (CDs) trade at yields north of 7 per cent, up 104 basis points and 72 basis points, respectively (as of Feb 4, 2026).

One year CPs and CDs, too, have seen yields rise by up to 35 in the past month and about 60 basis points in the past three months.

From an investor standpoint, this short-term spike in yield presents an opportunity to opt for money market funds that buy securities maturing in up to a year. Even otherwise, quality money market funds can be suitable avenues for parking emergency funds.

Tata Money Market fund is among the best in its category and has a solid track record over the long term in delivering steady above-average returns.

Investors can park small lumpsums or add units periodically whenever they have a surplus for short-term goals or contingency requirements.

Delivering consistently

Tata Money Market fund (Tata Liquidity management earlier) has done well over the years and has delivered better returns than fixed deposits of one year or less.

Over the past one, three, five and seven-year timeframes, the fund has delivered 80-160 basis points more than the CRISIL 1-year T-Bill Index.

When 1-year rolling returns are considered from January 2013 to February 2026, the fund has delivered mean returns of 6.93 per cent. The CRISIL 1-year T-Bill index gave mean returns of 6.66 per cent over the same period.

Over this rolling period and 13-year timeframe, the fund has delivered more than 6 per cent 78 per cent of the time and in excess of 7 per cent for as much as 63 per cent of the time.

Moreover, the one-year rolling returns from January 2013 to February 2026 also indicate the Tata Money Market fund beat the CRISIL 1-year T-Bill Index almost 90 per cent of the time.

A 3-year SIP in the fund on a monthly basis would have delivered 7.5 per cent (XIRR) returns. SIPs in the CRISIL 1-year T-Bill Index over the same timeframe would have yielded 6.4 per cent for investors.

Money market funds have the same tax treatment as all fixed income instruments. Gains (short-term or long-term) are added to your income and taxed at the applicable slab.

However, the key difference is that there is no TDS deducted and tax does not become due unless there is a sale of units. This leaves room to manage exits to optimise for taxes suitably.

Safe holdings

Tata Money Market fund maintains a portfolio that invests only in short-term securities with the highest credit rating, usually A1+  and sovereign instruments.

Typically, these are investments in CDs, CPs, short-term government securities including State development loans and short-term treasury bills.

The Macaulay duration and modified duration, key measures of interest rate sensitivity, are generally kept in the 4-5 months range across timeframes.

The average maturity is a little over five months in its recent December 2025 portfolio.

Yield to maturity is at 7.01 per cent according to Value Research data, which is healthy for money market funds.

Tata Money Market fund holds almost 100 bond securities in its portfolio, making it quite diversified across issuers.

Top holdings of the fund include Government of India security maturing in April. Other key investments include certificates of deposits issued by Bank of Baroda, Axis Bank, HDFC Bank, SIDBI, NABARD, HDFC Securities, ICICI Securities and IndusInd Bank.

As mentioned, the fund is suitable for lumpsum investments and targets due within the next 1-2 years where liquidity and reasonably inflation-beating returns with low risks are important criteria.

Published on February 7, 2026