Money Market Investment

  

Money market investment is done through two channels – the money market account and the money market funds.

Before studying in detail regarding these accounts, let us brief about the different money market instruments in which such investments are channelized. They are:

• Treasury Bills
• Certificate of Deposit
• Commercial Paper
• Banker’s Acceptance
• Euro Dollars
• Repos

Money Market Accounts

The money market account in which money market investments are made are high yielding interest savings account. The money market accounts provide secure money market investment and competitive interest rates. There are basically two types of money market accounts that are used for the money market investments and they are the:

• Money Market Transactional Account : This is a money market investment account that allows transaction to take place. One can also apply for a chequebook on this account.
• Money Market Investor: This money market account is basically tailored to fulfill the investment purposes.

Mode of operation of the money market account

The money market account can be opened at any bank. The money market investment that is made through the money market account uses the short-term money market instruments like the Commercial Deposits, Certificate of deposit and T-bills. The money market account holder then earns interest for allowing the bank to make such money market investments.

Although the money market account is low risk account , there are certain restrictions attached to the money market account. The money kept in the money market account is less liquid as compared to the regular savings account.

Money Market Funds

Investment in money market funds is a very low risk investment tool. It is the most liquid form of investment too.

Money market investments in the money market funds have the following advantages:

• The goal of any money market instrument is to provide short-term income coupled with stability.
• The money market funds offer the lowest risk of principal loss.
• The return on the money market fund is fixed although it has short maturity periods.
• The money market instruments are generally of very high denominations, which is not affordable to the personal investors. But money market funds have very low purchase requirements. Hence instead of spending sleepless nights in worrying about the cash that would be required, the money market funds impart security only.
• Hence if one is looking for liquidity, capital preservation or periodic income source, then money market funds are the best place to invest in.
• The money market funds have fixed Net Asset value . The Net Asset Value is generally tied at $1 per unit. Just like other money market instruments, the money market funds have same day settlement system.

The disadvantages of investing in money market funds are the following:

• The Federal Deposit Insurance Corporation or any alternative government body does not guarantee the money market investments in money market funds.
• The yields from investing in the money market funds may not adjust with inflation rates.
• The yields are low when compared to the other investment options.
• There is possibility of money loss by investing in the money market fund .

There are two types of money market funds- taxable and tax-free.

For more details on money market investmen t the important sites to be viewed are schwab.com, business.com, wachovia.com etc.