Are Money Market Funds For You

Are Money Market Funds For You



Are Money Market Funds For You?
Money market funds are one of​ the​ most popular cash management tools .​
These investments are also touted as​ the​ safest type of​ mutual fund .​
But before investing in​ them,​ you should first know what they are,​ their benefits,​ and if​ they are suitable investments for you.
What Money Market Funds Are
Money market funds are mutual funds that invest in​ money or​ financial markets,​ which,​ in​ simple terms,​ means that you borrow or​ loan money,​ respectively .​
a​ money market fund is​ similar to​ your deposit account at​ the​ bank in​ that it​ takes your money and uses it​ for investment purposes .​
Then,​ a​ portion of​ the​ earnings,​ which come in​ the​ form of​ dividends,​ are paid to​ you .​
In general,​ money market funds pay out monthly dividends .​
Money market funds typically invest in​ short term investments that mature in​ less than 13 months at​ the​ maximum .​
Since money market funds are investment with shorter time frame,​ the​ risk is​ significantly reduced .​
The idea is​ that lending the​ money for the​ short term is​ safer as​ there is​ a​ high probability that the​ amount will be paid back .​
Normally,​ money market funds invest in​ US Treasury issues,​ short-term corporate paper,​ and certificates of​ deposit .​
There are different kinds of​ money market funds based on​ the​ type of​ securities they buy .​
However,​ the​ most significant distinction is​ whether the​ dividends earned are taxable or​ tax-free .​
The Advantages of​ Money Market Funds
With this type of​ investment,​ you are allowed to​ write checks that draw from a​ money market fund .​
This allows you to​ enjoy the​ benefits of​ dividend earnings,​ plus you can easily access your cash .​
However,​ you need to​ verify with your institution first regarding restrictions and fees.
Money market funds are most practical for parking cash you need in​ the​ short term .​
These needs may include down payment for a​ house,​ a​ car or​ a​ vacation .​
Also,​ since money market funds are completely liquid,​ you can sell your shares in​ a​ money fund anytime you want to​ .​
Who Invests in​ Money Market Funds
Money market funds are for investors who want to​ earn decent returns from safe investments .​
These investments are usually liquid .​
This means that you have the​ privilege of​ drawing out the​ money within a​ few business days if​ you need to​ .​
Money market funds also allow you to​ take advantage of​ increasing interest rates .​
This is​ made possible by stashing your money in​ an​ investment that adjusts with the​ movements of​ the​ market.




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