Check out these three solid money market funds that beat bank FDs

For the principal's protection, people often choose bank fixed deposits (FD). What if we said that these top three money market funds outperform bank FDs while also carrying lesser risk? Continue reading.

One of the most traditional investment options is a bank fixed deposit (FD). Actually, the majority of the people from older generations still favour bank FDs as their preferred investment option, followed by government schemes.

A 2019 Securities and Exchange Board of India (SEBI) survey found that 95 per cent of Indian families choose to invest in bank FDs. Furthermore, according to Statista, people owned about Rs 46 lakh crore in bank FDs as individual assets in the fiscal year 2020.

This demonstrates the popularity of bank FDs in India. The table below shows the top bank FDs with the highest interest rates. It should be noted that these interest rates apply to investments of less than Rs 2 crore.

The average three-year rolling returns from these top three money market funds were between 7 per cent and 7.2 per cent. The three-year rolling returns were computed from September 19, 2014, to September 19, 2022.

The maximum returns obtained ranged from 7.7 per cent to 8 per cent, as seen in the table above. And the minimal returns achieved were roughly 5 per cent.

Furthermore, we can observe from this rolling returns data that none of the funds listed above has generated negative returns. When its calendar year returns are examined, it is only in the year 2021 that these funds generated returns of roughly 4 per cent.

This can be attributed to unfavourable bond markets. During the remaining years, these funds achieved average returns ranging from 6 per cent to 10 per cent. Having said that, even on a post-tax basis, returns of 7 per cent in three years are achievable. This is because debt funds are taxed more efficiently than bank FDs.