Money market momentum: Tata AMC’s Amit Somani on strategy, volatility, what's ahead

Amid falling interest rates and a growing preference for low-volatility investments, money market funds have emerged as a preferred choice for short-term allocations. One of the leaders in this trend is the Tata Money Market Fund, which recently crossed the Rs 30,000 crore mark in assets under management (AUM)—driven by consistency, strategic positioning, and a clear understanding of the evolving fixed income landscape.

In an interaction with BT, Amit Somani, Deputy Head— Fixed Income at Tata Asset Management and fund manager of the Tata Money Market Fund, shared his insights on the factors driving this growth, the evolving role of money market funds, key trends and the outlook for India’s fixed income markets.

Q: What are the factors that have aided Tata Money Market Fund’s recent AUM growth?

Amit Somani: Tata Money Market Fund has seen robust AUM growth due to a combination of consistent performance, investor preference for low-volatility products, and the fund’s ability to achieve risk-adjusted returns.

Within the money market category, which has outperformed other short-duration segments recently, Tata Money Market Fund stands out due to timely shifting of duration between 3-12 months. It helps manage interest rate risk effectively while maintaining high liquidity. The AUM growth is broad-based, driven by both institutional and retail participation, reflecting confidence in the fund’s positioning.

Q: What should investors keep in mind while investing in money market funds today?

Somani: Investors should see money market funds as a low-volatility solution for short-term allocations, typically having investment horizon above 1-2 months or for monies lying idle in savings bank accounts.  RBI has already delivered two rate cuts and shifted its stance to accommodative in the last monetary policy. We are currently in the mid of rate cut cycle, which makes this category of funds attractive. It can lock in yields early and potentially benefit from falling rates, while liquidity can be generated at short notice with minimal impact on expected returns.

It’s important to look for strong liquidity, consistent returns, and quality credit exposure. Our fund is designed with these priorities in mind, offering a better alternative to traditional asset classes for surplus money.

Q: How do you see the role of money market funds in an overall asset allocation strategy, especially in a volatile interest rate environment?

Somani: In a volatile interest rate environment also, Money market funds can be used aa a tool for core allocation. They aim to balance capital preservation with relatively higher liquidity and potentially lesser volatility in returns, making them ideal for both strategic and tactical allocations. Balances lying in savings bank accounts without clarity on horizon and purpose of usage, could be considered for parking into Money Market funds.

With the market already pricing in rate cuts in the coming quarters, money market funds can play a key role in delivering potential returns while keeping volatility low .

Q: How do you expect the RBI’s monetary stance to evolve over the next 6–12 months, and how are you positioning the fund accordingly?

Somani: The RBI has now formally moved to an accommodative stance, with our house view anticipating another 50-100 bps of rate cuts in the current cycle. The focus is clearly on supporting growth while inflation remains within target.

In anticipation of this, we are positioning the fund at the higher end of the maturity spectrum (8-10 months) to optimise carry and potential mark-to-market gains, while continuing to emphasize high-quality and liquid instruments to manage risk.

Q: What are the major trends you’re observing in the money market space over the past 6–12 months?

Somani: A few clear trends have emerged:

Strong AUM growth across the category, supported by both institutional and retail flows.
Preference for up to 1 year duration products offering low volatility.
A clear shift in investor behaviour towards simple and effective parking solutions, as opposed to traditional asset classes or savings accounts.
The RBI’s more domestic-focused and liquidity-supportive approach, to help overall economic growth.

Q: What’s your broader outlook on the fixed income market, especially in light of global interest rate trends and inflation?

Somani: Globally, further rate cuts are on the horizon, albeit with uncertainty around pace and timing. In India, inflation has moderated, and the policy direction is now aligned with further easing. We expect the fixed income market to see a softening of yields across the curve, along with the short end. In this context, money market and short-duration funds are well-placed to potentially benefit here on, making them attractive in the current cycle.

We see a regime shift at the RBI in terms of liquidity management. RBI has been proactive in infusing large sums of high-power money to help banking system liquidity. This is helping better transmission of rate cuts and we expect RBI to continue to support this rate transmission drive going ahead. This regime shift is also supported by the reversal in the weakness of Rupee, as global USD strength faded.

Q: Where do you think India’s economy and inflation are headed in the next year or so, and what impact might that have on short-term interest rates?

Somani: India’s economic growth remains resilient in medium-term, supported by strong domestic drivers. In the near term, however, uncertainty emanating from geopolitical and tariff-related developments poses downward risk. Inflation is expected to stay anchored near 4%, aided by stable food and fuel prices.

With two policy rate cuts behind us, current real rates continue to remain high and require more policy easing to support growth, making a stronger case for investment in Debt funds.