Are you new to the money market and want to know the concept of a money market mutual fund? If yes, then you are at the right spot. In this blog, we will discuss the short guide. These are fixed-income mutual funds that invest in debt securities categorized by minimal credit risk and short maturities. These are considered among the lowest volatility kinds of investment. The income is either tax-exempt or taxable generated by the money market, depending on the nature of the security of the investment.
There are three categories of money market funds based on investment according to the regulation from the US: prime, government, and municipal. Securities and exchange commission (SEC) further categorized the municipal and prime funds as retail and institutions in the fund.
Types Of Money Market Funds
The money market mutual funds have federal regulation to be very high in credit quality and short in maturity. The money market funds have complied with sector-specific regulatory requirements about the maturity, quality, maturity, and diversification of the investment in funds. These investments include repurchase agreements, short-term treasury securities, Eurodollar deposits, treasury security, corporate commercial paper, certificate of deposit, and obligation of states, and other kinds of municipal agencies according to the focus of the fund.
Retail And Institutional Prime And Municipal Money Market Funds
The policies and procedures of retail prime and retail municipal money market mutual funds are designed to limit all beneficial owners to natural persons. These funds need to maintain the stable net value of $1 but are subject to redemption gates and potential liquidity. For example, if the liquidity of the funds falls then there may be a fee imposed on the sale of your share or can be temporarily suspended. the government money market mutual funds are available to both institutional and retail investors such as US treasury funds. These Are not subject to any kind of floating NAV redemption gates.
If you are planning to invest in money market mutual funds then:
- You may have a goal of investment with short term horizon
- You don’t have much tolerance about volatility and looking to diversify with more conservative investment
- You may be looking for an extremely liquidate investment
- Whereas the rates of money market mutual funds are much lesser than other types of fixed income funds like bonds, they are known to provide stability and play a significant role in your portfolio. There are different ways of money market mutual funds that can be used by the investors:
- To equalize the typically superior instability of equity and bond investments
- The short term investment for assets that can be withdrawn for the emergency fund
- For the holding place for assets to wait for the better investment opportunities to have
Advantages Of Money Market Funds
You will find the money market mutual funds as of the least unstable type of investment
These investments are considered high in liquidity as compare to other investments as these are available to the very next business day
These funds are regulated by the federal government to invest in low-risk investments and short maturity that make them less prone to the fluctuation of the market.
The money market mutual funds are generally short term securities so the duration is small, so the interest rate is low