What Is a Money Market Fund?

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These days, it really pays to be smart about your money. Because there are already a lot of things to spend on, the prices of basic items and services have greatly increased over the past years.

The prices of gasoline, for example, never seem to show signs of waning, and because we need it so much, we have to bear with these expenses. But if you want to make your money go a long way, then investing is a brilliant option for you. Keep in mind, however, that when you invest, a big part of that decision includes the risk, so be sure you are well-informed enough before you start investing your money.

One way that you can make well use of your hard-earned money is by investing in a money market fund. If you think the stock market is the only ideal place to invest, and you haven’t heard of the money market fund, then here are some basic tidbits to help you out.

Basically, money market accounts represent debt securities in United States government agencies, United States treasury bills, certificates of deposits, and many others. When you purchase shares from money market accounts, the price rarely changes. And each one is fixed at $1.00. Sources say that the money market rates are fixed, but the yield can fluctuate.

What makes the money market fund a good place to invest your money? There are generally three traits that make it a wise option for would-be investors: money market accounts have high liquidity, they are low risk, and money market rates are fixed but give competitive yields. Let us examine each one in detail.

First, when you say that money market funds have liquid assets, you can easily take out your earnings from them, even on short notice. High liquidity of money market funds is what they call it. You can’t do this in time deposit accounts and most stock market investments.

With most money market accounts you can write as many as three checks from your money market account per month. As opposed to investments with certificates of deposit, there are fees for withdrawals made. These features vary between fund companies and financial institutions, so be sure to pick one that best fits your needs.

Next, money market funds are low risk. As said before, the prices rarely change. This is because the government can always make adjustments to the taxes in case some instability is detected with regards to these funds.

Lastly, the competitive yields being described here are much more rewarding than comparing them to certificates of deposit or even time deposit accounts. On average, about 4 to 6% of returns can be expected per year, when you invest in the money market.

Money market funds are under the regulation of the Investment Company Act of 1940. The United States Securities and Exchange Commission (SEC) provides additional information on the money market. Plus, you can view complete details or profiles of the funds that you can invest in.

January 25th, 2008 by Local Fresh

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