Introduction
As an investor, you are probably looking for safe, reliable investment alternatives that provide a decent return without all the volatility of stocks and mutual funds. Government money market funds are a great alternative, giving you liquidity, capital preservation, and a very low risk by investing in short-term U.S. government securities.
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The Fidelity Government Money Market Fund (SPAXX), Vanguard Federal Money Market Fund (VMFXX), and American Century Capital Preservation Fund (CPFXX) rank among the best exclusively available government money market funds, having performed well and provided relatively high returns to investors when comparing their objectives and risks. This article reviews these money market funds to help you make an informed decision for your situation in India.
Why Government Money Market Funds?
Government money market funds are relatively low-risk investments concentrating on short-term U.S. Treasury securities like U.S Treasury bills, U.S. Treasury notes, and/or repurchase agreements collateralised by U.S government assets. Money market funds maintain a stable net asset value (NAV) of $1, thus protecting the principal and allowing investors to earn returns via dividends based on government money market fund rates. These funds are generally available to Indian investors through international investing platforms or brokers, providing a hedge against rupee depreciation and U.S. dollar-denominated assets. Since they are highly liquid, they can be a great place to park surplus or build an emergency corpus.
Fidelity Government Money Market Fund (SPAXX)
One of the money market's giants is the Fidelity Government Money Market Fund (SPAXX) with $267.99 billion in assets as of mid-2023. Launched in 1990, SPAXX invests almost entirely (nearly 100%) in cash equivalents, with U.S. Treasury securities and fully collateralised repurchase agreements in its holdings. SPAXX's portfolio has an extremely short maturity of around 24 days. This short maturity means it can quickly adapt to shifting interest rates, maximising returns, and offering low risk. For you as an Indian investor, SPAXX's interest rate performance is attractive. SPAXX had a one-year total return of 5.09% as of January 2025, and an average annual return of 1.39% over 10 years. It has an expense ratio of .42%, which is reasonable given its stability. You can expect dividends regularly, and if you want a reliable liquid fund while diversifying your U.S.-based assets portfolio, SPAXX is a good choice.
Vanguard Federal Money Market Fund (VMFXX)
The Vanguard Federal Money Market Fund (VMFXX), which was opened in 1981, is another contender, with $247.8 billion in total assets under management. This fund invests in high-quality, short-term U.S. government securities. As of early 2025, 32.10% of VMFXX's portfolio is in repurchase agreements. VMFXX employs a conservative approach to capital preservation, likely appealing to cautious investors like yourself.
The current return is competitive: the one-year total return of 4.92% (January 2025), the current expense ratio of 0.42% and the current dividend yield of 0.15%. In the Indian marketplace, VMFXX gives you something a little stable and safe, specifically if you use a platform like Interactive Brokers or invest in the U.S. marketplace; you can get an asset class like this. The large base of assets, combined with Vanguard's low-cost investing reputation, makes it a fund worth considering for investing.
American Century Capital Preservation Fund (CPFXX)
If absolute safety is your top priority, consider the American Century Capital Preservation Fund (CPFXX). Founded in 1972, CPFXX has $2.27 billion in assets and invests only in short-term U.S. Treasury securities, avoiding repurchase agreements for the utmost safety. Due to its more conservative approach, the fund's portfolio has a weighted average maturity of 39.57 days, slightly longer than SPAXX or VMFXXX.
As of January 2025, CPFXX had delivered a 4.74% one-year total return with a gross expense ratio of 0.48%. While CPFXX's returns are lower than SPAXX's or VMFXX's, the focus on treasury limits credit risk the most for the three. This is considered a good option for investors seeking to limit credit risk while keeping the ability to be liquid for short-term goals.
Why Choose These Funds?
Money market funds like SPAXX, VMFXX, and CPFXX represent a good investment compared to fixed-income options in India (e.g., fixed deposits or debt mutual funds). Government money market fund rates provide competitively attractive government money market fund yields (4.74%–5.09% annually) while providing you access to the U.S. markets. Indian fixed deposits return 6–7% but do not offer similar liquidity and protection from currency risk as these money market funds do. Awareness of currency exchange risks and tax implications related to overseas investments is also very important. Always check with your financial advisor for assistance aligning these funds to your investment objectives.
Final Thoughts
If you are looking for a low-risk, liquid investment, SPAXX, VMFXX, and CPFXX are some of the best government money market funds available. SPAXX has the best returns and the most money in the fund. VMFXX has a good balance of keeping expenses low and being reliable, and the company that runs CPFXX has safety as its primary mandate. You will also need to assess your risk tolerance, investment time horizon, and whether you can access these funds on the international platform you use. Each fund has slightly different mandates, so knowing which fund is right for you will not be evident before you spread your investments. You can park your money in these market funds, earning you efficient dollar-type returns, while being confident that your capital is secure.