| Money market funds are one of the most | | | | significant distinction is whether the |
| popular cash management tools. These | | | | dividends earned are taxable or tax-free. |
| investments are also touted as the safest | | | | |
| type of mutual fund. But before investing in | | | | The Advantages of Money Market Funds |
| them, you should first know what they are, | | | | |
| their benefits, and if they are suitable | | | | With this type of investment, you are allowed |
| investments for you. | | | | to write checks that draw from a money market |
| | | | fund. This allows you to enjoy the benefits |
| What Money Market Funds Are | | | | of dividend earnings, plus you can easily |
| | | | access your cash. However, you need to verify |
| Money market funds are mutual funds that | | | | with your institution first regarding |
| invest in money or financial markets, which, | | | | restrictions and fees. |
| in simple terms, means that you borrow or | | | | |
| loan money, respectively. A money market fund | | | | Money market funds are most practical for |
| is similar to your deposit account at the | | | | parking cash you need in the short term. |
| bank in that it takes your money and uses it | | | | These needs may include down payment for a |
| for investment purposes. Then, a portion of | | | | house, a car or a vacation. Also, since money |
| the earnings, which come in the form of | | | | market funds are completely liquid, you can |
| dividends, are paid to you. In general, money | | | | sell your shares in a money fund anytime you |
| market funds pay out monthly dividends. | | | | want to. |
| | | | |
| Money market funds typically invest in short | | | | Who Invests in Money Market Funds |
| term investments that mature in less than 13 | | | | |
| months at the maximum. Since money market | | | | Money market funds are for investors who want |
| funds are investment with shorter time frame, | | | | to earn decent returns from safe investments. |
| the risk is significantly reduced. The idea | | | | These investments are usually liquid. This |
| is that lending the money for the short term | | | | means that you have the privilege of drawing |
| is safer as there is a high probability that | | | | out the money within a few business days if |
| the amount will be paid back. Normally, money | | | | you need to. Money market funds also allow |
| market funds invest in US Treasury issues, | | | | you to take advantage of increasing interest |
| short-term corporate paper, and certificates | | | | rates. This is made possible by stashing your |
| of deposit. There are different kinds of | | | | money in an investment that adjusts with the |
| money market funds based on the type of | | | | movements of the market. |
| securities they buy. However, the most | | | | |