A money market fund is a type of mutual fund that invests in high-quality, short-term debt instruments, cash, and cash equivalents. Though not quite as safe as cash, money market funds are considered extremely low-risk on the investment spectrum.
Pros and Cons
They allow easy access to the cash invested, and they don't require a minimum. Their rates are slightly below those of CDs that levy penalties if funds are withdrawn before they come due. The worst disadvantage is that money market funds are not insured by the Federal Deposit Insurance Corporation (FDIC).
Money market funds offer higher yields than savings accounts but are relatively safer than bonds. Therefore, if you're looking for a combination of safety and higher interest rates, money market funds can be a smart place to keep your short-term savings or emergency fund.
A money market fund is a mutual fund that invests solely in cash and cash equivalent securities, which are also called money market instruments. These vehicles are very liquid short-term investments with high credit quality. Money market funds generally invest in such instruments as: Certificates of deposit (CDs)
As per the Reserve Bank of India, the term 'Money Market' is used to define a market where short-term financial assets with a maturity up to one year are traded. ... Besides, the money market deals are not out in money / cash, but other instruments like trade bills, government papers, promissory notes, etc.
Higher-risk money market funds may invest in commercial paper, which is corporate debt or foreign currency CDs. These holdings can lose value in volatile market conditions or if interest rates drop, but they can produce more income, too.
Money market accounts usually require a higher minimum balance than regular savings accounts, sometimes as much as $10,000, according to Bankrate.com. You can be hit with a hefty fee of as much as $25 if your balance falls below the minimum. You can incur a penalty for writing too many checks.
Money markets provide temporary safety during a recession with short-term, low-risk securities.
If you insist on holding all your money in money market accounts, no one account should hold more than the FDIC-insured amount of $250,000. It is not uncommon to see families or estates with multiple bank accounts to insure their money as much as possible.
Vanguard Federal Money Market Fund (VMFXX)
It is one of the most conservative investments offered by Vanguard, as U.S. government securities are considered low-risk investments. VMFXX requires a $3,000 minimum investment and has a 0.11% expense ratio. It had an average one-year return of 0.2%.
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