What is the purpose of investing in money market funds?

Money market is a term that people are familiar with by now.  This is an organized exchange of money in which participating individuals borrow or lend huge sums of money for a period of twelve months or less. This is a very efficient form of doing business and works very well for large businesses, banks, governments, and other such financial institutions that have large monetary transactions.  Money markets are also beneficial for those that wish to invest smaller sums as well as enjoy the other benefits such as the liquidity it offers as well as the safety features that are the best in the market.  In order to get a better understanding one must be aware of the purpose of a money market fund.

Purpose of a money market fund:

Individuals as well as organizations will invest in money market funds based on their own requirements.  They borrow or lend money depending on the need for funds.  One may face situations where they would be in possession of sufficient funds but may not actually have a need for them immediately.  Under such circumstances the wise thing to do would be to invest in money market funds temporarily until it is required at a later date.  By investing the money in money markets one can secure interest quickly and more easily.  Holding onto cash that is not required immediately will result in losing interest for that period of time.  This is also known as the ‘opportunity cost’ and by investing in funds this interest can be easily earned.

The major attractions of money markets are the interest it offers along with the safety features.  The maturities in money market can range anywhere between a day to a year, but in most cases they are for a period of three months at least.  These investments are basically in association with the huge active trading in the secondary markets and could be sold even before maturity by forgoing the interest that could have been earned if it was held until maturity.

However, there is no centralized location for a money market and the closest it has come by way of physical presence is the arbitrary association it has with the New York City.  Money markets are easily accessible by phone and those participating in the money markets will do so with the assistance of their financial advisors, bankers or accountants.  Money can be withdrawn in case the individual has plans to make a purchase or invest long term.