Commercial Paper
Commercial paper is a tool of debt, or otherwise known as a 'debt instrument,' whereby a solid company will issue the debt for short-term capital needs. A lot of money market mutual funds will invest in commercial paper as part of their investing strategy for safe, solid returns over the short term.
When issuing the debt, a company will have to pay the money out at a specific day they've instituted as part of the investment, normally from between two to 270 days.
The general practice of commercial paper is to be sold at a discount, and so is used by companies to aid them in managing their short-term capital flows.
Similar to a money market fund, investors will use commercial paper to put their money they're not going to use in the immediate future, as it's very safe, and it's very easy to get your money out when you want or need it.
Not only is it very safe investment because the companies issuing the commercial paper have very high credit ratings, but also because it is backed up by lines of credit from banks, making it extremely safe. The result for investors is also low yields, which the safety of commercial paper offers.
Commercial Paper
Showing posts with label What is a Money Market Fund. Show all posts
Showing posts with label What is a Money Market Fund. Show all posts
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
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
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