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Money Market Mutual FundsToday, money market mutual funds account for nearly 1,000 of the more than 8,000 mutual funds available to investors. Even more impressive is the fact that money market fund's assets account for more than one-quarter of all mutual fund assets. That's around $2 trillion invested in money market funds alone. Money Market Funds DefinedSo just what is a money market mutual fund, and how can we define this type of account? A money market fund is defined as a mutual fund that is required by law to invest in low-risk securities. This means these funds are relatively low-risk investments compared to other types of mutual funds. They also pay dividends to shareholders that are aligned with short-term interest rates. Money Market Investing
Money market funds invest in assets like certificates of deposits, government securities, commercial paper of companies, and other low-risk, highly-liquid securities. Unlike other mutual funds, they attempt to keep their net asset value (NAV) at a constant $1.00 per share. Don't confuse money market investing with money market deposit accounts found at local banks. For example, money market funds are not insured through the Federal Deposit Insurance Corporation (FDIC). Even though money market funds are not insured, they are still considered very safe investments because the fund's holdings typically include investments like Treasury Bills sold by the federal government. Since the government has the ability to raise funds to cover expenses through taxes, the likelihood of default on a government security is extremely low. That's why many consider money market funds a "safe" investment. Stated another way, it is very likely that the U.S. government will pay all interest due on its bonds and bills. If the government were to stop paying on these obligations, U.S. citizens have bigger problems to worry about than the interest rate or dividend payment on a money market fund. Liquidity and Money Market FundsMoney market funds are also considered very liquid investments. This means you can take money out of your account on relatively short notice. There is also no penalty for taking money out of your money market fund, unlike banking instruments such as certificates of deposit (CD's), which can impose fees for early withdrawals. Money funds provide the benefit of pooled investments, since investors can participate in a more diverse, and higher-quality, portfolio than they could otherwise. Like other mutual funds, each investor buying into a money market fund is considered a shareholder of the investment pool; a part-owner of the fund. Money Market Interest RatesAfter yielding around 2.5% for the last several years, money market rates are starting to lose the interest of investors once again. In 2011, we see money market interest rates hovering around 0.1%. This makes them a far less attractive alternative to bond funds, which are providing higher yields. Top Money Market FundsWe're going to finish up with a list of some of the best money market interest rates you'll find today (May 2011). These money market funds have been ranked in terms of their 7-day yield, which is the typical performance benchmark you'll find with this type of fund. Top Money Market Fund Interest Rates
You can find more up to date information concerning the current yields and interest rates on money market mutual funds by visiting IMoneyNet.com. About the Author - Money Market Mutual Funds Copyright © 2004 - 2011 Money-Zine.com |
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