ICICI Pru Money Market Fund Review: When & how to use it

This is a review of ICICI Pru Money Market Fund, its portfolio duration and credit style history and a guide on when and how to use it

Published: March 8, 2020 at 11:40 am

Last Updated on

This week, we shall review a debt mutual fund: ICICI Pru Money Market Fund. This is an open-ended money market mutual fund that invests in bonds maturing within a year.  Its credit risk profile is fairly low. Although typically intended for short-term use it can also be considered for goals more than a few years away.

A money market fund is one that invests in short-term bonds. A money market is a place where cash is borrowed for short periods of time ranging from a day to a few months.   These bonds are less sensitive to interest rate changes due to their short-term nature.

Fund managers in this space tend to follow a buy-hold-buy-again approach or accrual strategy. The NAV growth is predominantly from interest payments and the fund managers typically do not sell the bond mid-way for capital gains.

According to the scheme document, ICICI Pu Money Market Fund “seeks to provide
reasonable returns, commensurate with low-risk while providing a high level of liquidity”.

This is the portfolio maturity history of the fund. Non-maturity units refer to cash and the cash above 100% refers to debt arbitrage exposure (with a matching contribution below 100% cancelling it off).

Portfolio Maturity History of ICICI Pru Money Market Fund
Portfolio Maturity History of ICICI Pru Money Market Fund

The fund has been a short-term bond fund even prior to the SEBI regulations. Asset-type history is shown below.  The fund has a reasonable track record of good quality credit. However, this is not an indication of its future credit quality.

Asset Type History of ICICI Prudential Money Market Fund
Asset Type History of ICICI Prudential Money Market Fund

The AUM and expense ratio evolution is shown below.  The huge drop in AUM is possibly an institutional shift to overnight funds after the SEBI categorization rejig. Being a fairly liquid fund, it can withstand such AUM swings. The expense ratio has been fairly stable in the last few months but could increase when the AUM picks up.

AUM growth and expense ratio history of ICICI prudential money market fund
AUM growth and expense ratio history of ICICI prudential money market fund

These are the trailing returns of the fund as on March 6th 2020. Please note past returns are not indicative of future returns or performance. You can expect this fund to do a little better than a liquid fund with similar credit quality if there are no credit events.

YearsCAGR %
17.7
27.8
37.5
47.5
57.6
67.9
78.1

Should you consider ICICI Money Market Fund, if yes, when? First, this fund will be a little more volatile (daily NAV fluctuations) than a liquid fund. So it is not advisable to use it for less than a year.

At the time of writing the fund has a good track record of credit quality and has not suffered any credit downgrades. While this may or may not persist in future, it is enough to consider it for investment for more than a year and up.

It could also be used for regular income via withdrawals provided it is suitable for the investor and the individual is aware of associated risks.

It is worth taking more risk by choosing such funds than a liquid fund? A liquid fund also suffers from the same risks as money market funds. Its credit profile could also change in future. For short durations, a liquid fund is better. For longer durations (1 year plus) those who prefer a bit more return but with reasonably safe credit quality can consider this fund.

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