Money market fund (MMF)

What is a money market fund?

A money market fund is a type of mutual fund that invests in short-term debt instruments, such as government bonds, commercial paper, and certificates of deposit. Money market funds are typically used by investors as a way to park cash that they don't need immediately but may need access to in the near future. Money market funds offer a higher level of liquidity than other types of investments, such as bonds, and typically have lower expenses than other types of mutual funds.

How do money market funds work?

Money market funds invest in a variety of short-term debt instruments, such as government bonds, commercial paper, and certificates of deposit. The fund manager strives to maintain a constant $1 per share value by keeping the fund's assets invested in securities that mature in one year or less. When an investor redeems shares of the fund, the fund manager uses the proceeds to buy other short-term debt securities, in an effort to keep the fund's $1 per share value constant.

What are the benefits of investing in a money market fund?

Money market funds offer a higher level of liquidity than other types of investments, such as bonds, and typically have lower expenses than other types of mutual funds. Money market funds are also a relatively safe investment, as the fund manager strives to maintain a constant $1 per share value by investing in short-term debt securities that mature in one year or less.

What are the risks of investing in a money market fund?

While money market funds are typically a relatively safe investment, there is always the risk that the fund manager will not be able to maintain a constant $1 per share value. If the value of the fund falls below $1 per share, investors may lose some or all of their original investment.

How can I choose a money market fund that is right for me?

When choosing a money market fund, it is important to consider your investment objectives and risk tolerance. You should also consider the fund's expense ratio and performance history. It is also important to make sure that the fund is registered with the Securities and Exchange Commission (SEC).

What are some common misconceptions about money market funds?

One common misconception about money market funds is that they are guaranteed by the federal government. While money market funds are regulated by the SEC, they are not guaranteed by the federal government. Another common misconception about money market funds is that they are only for large institutions. While money market funds are often used by large institutions, they can also be used by individual investors.

Where can I find more information about money market funds?

The SEC website offers more information about money market funds, including a list of registered money market funds. You can also find more information about money market funds from your financial advisor or broker.

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