You may be seeking to invest money and wondering how you can get good return. Considering money market fund or mutual funds can be some choices to double your money. While making money from a money market never sounds easy, it needs you to understand a few things before unknowingly entering the captive arena. However, if you are risk averse and do not want to put all of your investment into risky options, choosing money market may emerge as a great investment opportunity for you.
What are Money Market Mutual Funds
Money market mutual funds make a popular tool for managing cash. These funds are what you invest in one or more money markets. Investing in money market mutual funds is almost similar to investing in stock market. As people sell and purchase stocks in stock market, you can also make the same deal in money markets by selling and purchasing money.
If I try to explain in simple terms, it’s like you earn a bonus of interest on your funds you have invested in your bank savings account. Similarly, money market mutual funds get you a piece of pie in the end of every month instead of dropping a quarterly bonus into your account. These funds invest in short-term instruments with a maturity period of less than one year. This is handy in reducing the chances of risk involved.
Difference between Money Market Fund & Money Market Mutual Funds
Understanding the basic difference between the two is very important before you decide on either of them. a money market fund is a fund being invested in financial instruments, such as certificates of deposits, banker’s acceptances, federal funds, or commercial paper. Money market mutual funds, on the other hand, are those investment pools that are invested according to the type of funds they have been designated as. Normally, a money market fund is one type of mutual funds.
From low yielding to most conservative funds, money market funds run an extensive range of investment tools. The most conservative funds are invested only in federal funds and US Treasury bills in order to invest in other instruments that come with more risks of paying higher rates. However, these types of instruments do not have FDIC insurance. On the contrary, most of the investment tools of money market are FDIC insured, ensuring the security on your investment.
Money market mutual funds can be practically safe if you invest them in government bonds or high-end corporate bonds. In most cases, it could be a great option if you do not withdraw your funds out of the instrument before they mature. Money market mutual funds generally give a higher return than money market funds.
Risks of Investing in Money Market Mutual Funds
Like any other investment options, investing in money market mutual funds come along several risks. In theory, a money market fund is a security. Most fund managers endeavor to set $1 share price for each share though there is no surety that the price will be able to sustain at $1. In case, if the share price goes down, it can cause you to lose some or most of your investment. Likewise, if the price goes higher, you can earn a greater return on what you have invested.
Whether you opt for money market mutual funds or choose to invest in a money market fund, rates never stay constant. When they are up, you make money. Similarly, when rates go down you may make less than you expected or lose capita from your investment. In other words, you are gambling with variables and you will never know how much you can get or lose at the end of the month.
Money market mutual funds have lots to do with inflation. Investing in money market on a long-term basis can be influenced by inflation which may gradually but surely wear away at your funds. In view of that, it is recommended to keep your investments short and simple so you can avoid unpleasant financial loses.
There are some banks that offer a FDIC insured money market account which works like a savings bank account which particularly help those individuals with ultra-risk aversion. These accounts are not mutual funds and allow you to withdraw funds for a limited times per month or per year. Although, money market mutual funds offer higher rates if yield than a money market fund, it is still important to check on the fees associated with all types of instruments or accounts. Remember, most of the money market mutual funds are not associated with any kinds of fees.
There are many banks and brokerage companies that offer these types of accounts as a safe holding spot for your investment. Since these types of investment are relatively safe, they come with relatively small returns.
Why Investing in Money Market Mutual Funds
Investing in money market instruments is relatively a safe option that comes with a decent return. The money you invest in does not get frozen which means you can withdraw your money anytime you want. Furthermore, you can also benefit from the increasing interest rates by putting in your money in a tool that will work according to the market trends.
Luckily, there are many companies that allow you to write cheques to get money from a money market fund which means you can avail benefits of a checking account whilst making money in the end of the month. It’s like a bank saving account without the bank haggling you about too many dealings.
Money market funds can be easily availed from brokerages, banks, and mutual fund companies, offering the investment option. They offer numerous money investment prospectuses for your ease to learn more about all types of money market funds. Make sure you carefully go through the provided information and are fully aware of everything when you finally decide on an investment option. Also, choose the investment company which is capable of excellent performance so you have a better chance of succeeding in your investment game.