A money market fund, commonly referred to as money market mutual fund is a fixed income mutual fund that focuses on investing in debt securities like the commercial paper and repurchase agreements and Treasury bills. They are characterized by short maturation periods. The funds are highly considered a safe form of investments with high returns. Some investors say that money market fund is safe, just like bank deposits with the only difference being their high yields.
Incomes generated by a market mutual fund can either be taxable or tax exempt, mainly depending on the securities invested in the fund. The main aim of these funds is to limit the exposure to risks of losing on investment due to credit, liquidity, and market risks. In the United States, these funds are regulated by the Securities Exchange Commission (SEC).
SEC has put money market funds into three broad categories based on the investments of the fund. The classes include the government, prime and municipal. The prime and municipal funds are further classified as either retail or institutional also based on the investors in the fund.
Who can invest in money market fund?
Money market mutual funds are suitable for investors who have a short-term goal since these funds take a short time to mature. They are also appropriate for those who are unwilling to take significant risks with their investments or those who are willing to diversify with a more conservative investment. The funds are also ideal for investors who need their investments to be extremely liquid. Whereas the returns from money market funds are not as huge as that from other types fixed income funds, money market funds have some stability and also reduced the risk of losses. It is a great investment for those investors who want to increase their investment portfolio.
Bruce R. Bent is a renowned American investor who is credited with inventing the world’s first money market fund. The New York-born investor graduated from the Great Neck North High school and then worked as a mail clerk for a post office. He later joined St. Johns University where he graduated with a degree in economics.