Money Market Funds

By: EconomyWatch   Date: 23 November 2010

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Money market funds can be defined as an investment fund that carry the purpose of earning interest for shareholders. Some suppliers of money market funds are brokerage firms, mutual funds, banks, etc. Most of the money market funds are not nationally insured, they are normally covered by private insurance. It is observed that a major amount of funds invest only in government-backed securities. For this reason, shareholders can think themselves as safe. Features of money market funds comprise of short-term securities that provide monetary instruments, quality etc.

Money market funds allow the investors to attain the flexibility of switchig their money from one fund to the other. The other advantage is that it exerts no charge.

Money market funds can be treated as a type of mutual fund that invests in short-term money market legal documents like commercial paper, government securities, CDs(certificates of deposit) etc. Some of the money market funds purchase specifically the government securities like treasury bills, while the other general purpose funds normally invest on short-term paper. People prefer these money market funds for their high yielding capacity, and security.

Investment companies who are registered with the Securities and Exchange Commission, normally handle the money market funds.

Functions

Money market funds sell shares to the investors and they get interest payments on a regular basis. There are several factors which are responsible to acquire the interest amount. These are management fee, level of interest rates, commissions etc.

Factors and restrictions relating to money market funds

Some of the major factors responsible behind money market funds are maturity, quality and diversity. One restriction regarding money market funds investment is that money funds can invest up to 5% in any one issuer. Money market securities needs to maintain a stable value and higher liquidity.

Advice by economists

Investors should cautiously observe the important information stated in the prospectus, which comprise risks, investment policies, expenses and charges before they decide to deal with money market funds.


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