A money market fund is an open end mutual fund that invests in short term debt securities. Money market funds are also known as principal stability funds. This type of investment is in the money market. The key objective is the conservation of principal, accompanied by humble dividends. Money market funds are often used by financial institutions to store money that is not currently invested; money market funds are highly liquid investments. Most deposits into a Money market fund are not FDIC insured, but the risk still remains to be extremely low. Money market funds are among the safest types of mutual funds because by law they are required to invest in low-risk securities.
Money Market Fund Traits
Money market funds mainly invest in government debt securities. Because the government has the ability to raise taxes in order to pay debt, these funds are considered very safe. Money market funds return an average of 4 to 6 percent a year, which rivals the return of CD's. The biggest risk involved in investing in money market funds is the danger that inflation will outpace the funds income, thereby eroding the purchasing influence of the investor's money. Most mutual fund companies carry some sort of insurance to cover assets. Investor losses in money market funds have been rare, however, they are possible. Money market funds generally have good credit quality, and generally maintain a diversified portfolio.
Money market funds generally are a smart place to hold money whether between investments, saving for a house, saving for a vehicle purchase, or looking for a safe place to put money. Before investing in a money market fund, you should read all the funds' available information, including its prospectus, or profile if the fund has one, and its most recent shareholder report.
