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• Stephen Cooper

Money Market Funds

Money market funds. Information on investing in money market funds.

Money market funds are only one of many of the very popular mutual funds that are available in the investment market. Money market funds are different than other mutual funds in a variety of ways:

• The money market fund's focus is only a short term investment, while other mutual funds rely on long term management. The average maturity of a money market fund is 60 days or less.
• The risk of money market funds is very low because they deal with government securities and companies that are highly liquid, which essentially means that their cash flow is constant. Mutual funds deal with a company's profit or growth over a period of time.
• Money market funds can be used almost like a checking account. People can withdraw their yields (from dividends and profits) on a regular basis because the accounts are short term.
• Managers are required for money market funds, and these require some type of fees. It's important to keep this in mind, because the yield of money market funds are lower than other types of investments, so fees can eat up a lot of what's in the account.

While the lower yields can make money market funds seem less appealing than other investments, don't be misled. The short term nature of money market funds is advantageous because of the ability to have access to the invested money in case of emergency. Often, other investments require long terms and have high penalties for early withdrawal if the money is needed sooner than the term requires. Money market funds, though, allow for more flexibility and control over how the investor can reach his money.