What is money market mutual fund?
A money market mutual fund is a kind of mutual fund that invests in ultra-safe or low risk securities. The purpose of the fund is to conserve the capital of the fund and it is unusual to see the NAV of a money market mutual fund go below one. The NAV can go below one if the securities do badly but it is quite rare to happen.
A Money Market Mutual fund is meant for people who wish to maintain their capital and park their short-term cash into a safety that gives – stable but low returns. It is also used by citizens who want to balance their portfolio and build in some security. If you have a lot of stocks in your portfolio then money market funds can balance your overall portfolio by providing capital safety.
Types of Money Market Mutual Funds
- Institutional Money Market Mutual Funds:
These funds are held by governments, institutional investors and businesses etc. Huge sum of money is parked in institutional money funds.
- Retail Money Market Mutual Funds
Retail money market funds are used for parking money temporarily. The investment portfolio of money market funds comprises of treasury bills, short term debts, tax free bonds etc.
- Special Features of Money Market Mutual Funds
Money market mutual funds are one of the safest instruments of investment for the retail low income investor. The assets in a money market fund are invested in safe and stable instruments of investment issued by governments, banks and corporations etc.
Generally, money market instruments require huge amount of investments and it is beyond the capacity of an ordinary retail investor to invest such large sums. Indian Money market funds allow retail investors the opportunity of investing in money market instrument and benefit from the price advantage.
Why Money Market Mutual Funds:
💡 A Great Place to Park Money:
When the stock market is extremely volatile and investors aren’t sure where to invest their money, the money market can be a terrific safe haven. Why? As stated above, money market accounts and funds are often considered to have less risk than their stock and bond counterparts.
💡 Liquidity Isn’t Usually an Issue:
Money market funds don’t generally invest in securities that trade minuscule volumes or that tend to have little following. Rather, they generally trade in entities and/or securities that are in fairly high demand (such as T-bills). This means that they tend to be more liquid, and that investors can buy into them and sell them with comparative ease.
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