The benefits you can reap from money market funds

Money market funds are open ended investment funds that are used to earn higher interest rates on shares invested for shorter time period. The exclusive feature of money market funds that separates it from all the other funds is that the fund ensures a Net Asset Value or NAV of $1 for every share that has been invested by an investor. These funds are offered by the different insurance companies, brokerage houses, banks and other financial institute. The investments are made for short terms. 

Advantages of money market funds 

  1. Money market funds maintain a Net Asset Value of $1 per share. For example, if an investor invests $400 for a period of ninety days then the aim of the money market fund will be to return the $400 at the end of the ninety day period as well as an additional interest yield as per the market’s performance. This means that in case the market performs negatively, the investor remains assured of at least getting back the $1 per share of the invested amount.
  2. Money market funds are regulated by the Security and Exchange Commission. This makes investment in money market funds highly secure. The SEC sees to it that the investors money get invested in only highly rated forms of short term, fixed income investments. This assures a profitable yield to the investors at the end of the term.
  3. Money market funds offer diversification of the invested money. It is mandatory to maintain a diversified portfolio for the investor’s money. Other than the US treasury and Government agencies, private money market fund organizations cannot invest more than five percent of the investor’s money on any one holding. This helps in recovering from the losses if any one share fails to perform as the loss gets made up by the good performance of the other share.
  4. Money market returns are higher than the returns gained from normal savings accounts and certificates of deposits. The highest dividends are paid that are easy to access as well as secured.
  5. Money market funds are easy to access and highly liquid in nature. They can be withdrawn by checks, telephone as well as can get electronically transferred to the investors account on notification.
  6. These financial tools are good for parking cash. This means money that might be needed to pay for housing loans and child’s education etc in the near future can be invested to get short term gains from the market.

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