Investor Corner/The asset classes/Debt Concepts
2.2.12 Money Market Instruments
Money market instruments are very short-term debt securities, such as treasury bills, commercial paper and certificates of deposit. They are used to park money with high safety and easy access rather than for growth.
Built for safety and access, not returns
Money market instruments typically mature within a year, often within days or weeks. That short maturity keeps both interest-rate risk and credit risk relatively contained compared to longer-dated bonds, but it also means the yield on offer is generally modest, since safety and speed of access come at the cost of return potential.
The main types
Treasury bills are short-term government borrowings, generally considered the safest option in this category. Commercial paper is short-term, unsecured borrowing by companies with strong credit standing. Certificates of deposit are similar short-term instruments issued by banks. Liquid and overnight mutual funds primarily hold a mix of these to offer investors easy access with minimal price volatility.
Where they fit in a plan
Money market instruments are the natural home for an emergency fund, money earmarked for a near-term goal, or cash temporarily waiting to be deployed elsewhere. They are not meant to be a long-term growth engine, and holding a large portion of a long-horizon portfolio here typically means accepting a real opportunity cost over time.
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