Money market mutual funds is a mutual funds that invest solely in money market instruments. Money market instruments are form of debts that mature in less than one year and are very liquid. So, mutual funds which invest in debt instruments of short term with the sole objective of earning interest for their shareholders are called as money market mutual funds. Money market mutual funds are considered to be relatively risk free investment option as compare to other securities. Money market funds are generally the safest and most secure of mutual fund investments. The goal of a money-market fund is to preserve principal while yielding a modest return. These funds are easily accessible and are as good as savings accounts in terms of liquidity. The returns are often higher than on money market accounts than on savings. Money market mutual funds usually come with free checks or an ATM card for easy access to cash.
Investors in the higher income brackets may benefit from tax-exempt money market funds which invest in bonds and securities issued by municipalities and state governments. Government securities such as T-bills and CDs provide a steady return on investment they are not affordable by retail individual investors for they require an initial outlay of huge sums of money.
There are various other benefits including: –
- Anytime withdrawal without penalty
- Easy redemption processes, either online or by phone
- Easy set up; it can be initially funded by linking to the bank account
- Money market funds are considered cash equivalents
- They are considered safe instruments
Types of Money Market Mutual Funds
Money market funds are of two types:
1. 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.
2. 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..