Added: 02/13/2006 |
Money market fund is a smart place to hold your moneyMoney market funds have been around for 30 years and are a very popular place for investors to park their money. Money market fund is an open-end mutual fund which invests only in money markets. These funds invest in short term (one day to one year) debt obligations such as Treasury bills, certificates of deposit, and commercial paper. The main goal is the preservation of principal, accompanied by modest dividends. The fund's net asset value remains a constant $1 per share to simplify accounting, but the interest rate does fluctuate.
Although money market mutual funds are among the safest types of mutual funds, it still is possible for the money market fund to fail, but it is unlikely. In fact, the biggest risk involved in investing in the money market fund is the risk that inflation will outpace the funds' returns, thereby eroding the purchasing power of the investor's money also called the money market fund. Before investing in a money market fund, you should carefully read all of the fund?s available information, including its prospectus, or profile if the fund has one, and its most recent shareholder report.
Money market funds are regulated primarily under the Investment Company.
The Money market fund is very liquid, meaning you can take money out of them on short notice. There is no penalty for taking money out of your money market fund, unlike Certificates of Deposit (CD's) that impose large fees for withdrawing your money. You can also write checks from your money market account (typically three a month).
The Money market fund is not FDIC insured, but they are still very secure because they are holding very safe investments like t-bills. Government debt securities are considered very safe because the government has the ability to raise taxes to meet its obligations. It is virtually impossible to lose your principle in money market funds. To top it off, most mutual fund companies carry some sort of insurance to cover your assets.
Your checking and savings accounts will have a tough time beating the yield of a money market fund. Money market funds return an average of 4 to 6 percent a year, which rivals the return of CD's. The interest is calculated daily, but only paid out at the end of the month unless you sell the fund, then it is paid at that time.
As mentioned earlier, about 2.3 trillion dollars of investors' money was in money market funds at the time of writing. If you sell a stock or a mutual fund, your broker or fund company will typically move your proceeds into a money market account so you can collect interest. Also, when you open an account with most brokerage firms or fund companies, your money is typically put into a money market account until you are ready to purchase bonds or equities.
Money market funds are clearly a smart place to hold your money. If you are between investments, saving for a house, saving for a vehicle purchase, or just looking for a safe place to put money, we urge you to put the money in a money market fund. There is no reason to hold large amounts of money at the bank.
Article comments:
No comments for this article yet. Post your comment now!
