Friday, September 18, 2009

What is a Money Market Fund?

Money Market Fund

A money market fund is a mutual fund that invests in short-term debt like Treasury bills, CDS, repurchase agreements and commercial paper, among other things.

While they are normally considered among the safest places to put your money, there are exceptions, like when Lehman Brothers collapsed a year ago and the net asset value of the money market funds they held fell below $1 (called breaking-the-buck), causing people to lose some of their initial investment. While that is a rare occasion, it has happened before in the past.

For the most part a money market fund is not FDIC insured, but there is the option of having it privately insured.

Another nice feature of a money market fund is their liquidity, whereby you can access your capital very quickly if you need to.

Because of the safety factor usually connected to money market funds, you will receive a much smaller return on your capital, and is normally used as a place to park cash when it's not being invested, or a place to put your money in case of economic emergencies where you can get at it quickly.

Money Market Fund

No comments: