How to invest in money market funds?

There are a number of mutual funds that allow investors to get good returns on their investment or preserve their wealth, depending on the risk appetite of the investor. For those who are more interested in safety of capital and preservation of wealth, money market funds offer a very good option to park their surplus funds. Rather than create wealth by buying of selling of shares, these funds invest in low risk bonds and securities and earn income from the dividends and capital gains.

Things One Should Know 

At the time of investing money in a money market fund, one should enquire about the return on investment that is assured by the fund. This figure is expressed as a percentage and is commonly referred to as yield. On your request, the fund manager will tell you the past yields of that fund over various tenures, starting from 7 day yields and going up to 90 day yields. You can get an idea about this fund’s performance by studying both its short term and long term yields. Do not expect huge promises from money market funds, because their main attraction is not the returns, but the security of the money. Also find out the tax implication of the amounts invested into these funds, and also the returns given by these investments.

How to Invest 

Before you invest in a money market fund, it is important to accumulate a substantial sum of money, because many such funds require a high minimum amount. Once you are ready with the capital, the best place to enquire about money market fund options is at your regular bank where you have an old relationship. They would not only give you honest advice, but they might also offer you preferential rates. To cross check on your bank’s offer, and also to shop around for better rates, log on to the appropriate websites of various financial institutions on the internet and see what schemes they have in the domain of money market funds. On the internet, you might also come across lesser known companies offering stupendous rates of return. It is best to avoid these dubious claims and go with well established names. Also, it is a good idea to study the markets for a while to understand the comparative performance of various money market funds over short and long terms before taking the plunge.

If you have a substantial surplus of money for which you require security more than mind blowing returns, then money market funds are the ideal investment vehicle for you.