What Is a Money Market Mutual Fund?

If you are interested in accessing the money market then you can do it easily through money market mutual funds. Therefore, the smaller investors require an elementary understanding regarding commercial paper, repurchase agreements, certificates of deposit and treasury bills that make up the bunch of money market mutual fund portfolios.

In this blog, we will discuss how the money market funds operate and how they can help you. Let’s have some discussion on the difference between money market mutual funds and money market accounts:

Money market funds are not insured by the federal deposit insurance corporation, it carries risk that the investor could lose his money. The main difference between the money market accounts and funds is that the money market accounts are offered by the financial institution that are insured up to the certain limit whereas this is not the case with the money market funds as these are sponsored by the fund companies.

You may observe that the interest rate of money market accounts is higher than the savings account but lower than the money market funds. The withdrawals of money market funds are normally available on demand, whereas the balances in money market accounts are fixed so you do not have the right to withdraw as per your demand.

The reason behind it is that the money market mutual funds are held by the brokerage whereas the money market accounts are the liabilities for the bank so they invest that money somewhere else. When you are buying a money market mutual fund, you are purchasing securities and the broker is holding them. In the money market account, banks are investing your money somewhere else to earn and pay you the agreed upon return.

The Purpose of Money Market Mutual Funds

The main reason for considering market mutual funds as the suitable investment is that the level of liquidity is much higher. It helps you to have a convenient parking place for cash reserves.

If the investor has a basket of mutual funds associated with the same company then he may want to transfer the assets from one fund to another. So the wise decision is to sell your funds to the same fund company where the fund was offered in the beginning. Or you have the choice to exchange your funds with the other funds in the market.

To facilitate the client, brokerage companies utilize the money market mutual funds to provide the services of cash management.  Through putting the dormant cash of clients into market mutual funds and allowing them to earn extra percentage in annual returns more than earnings from the other possible investment securities.

Details of Money Market Mutual Funds

You can buy the shares in money market funds from mutual fund firms or directly from brokerage companies just like purchasing shares in stock. Some banks also offer money market funds to offer more investment opportunities. You can have some simplified withdrawal features in money market mutual funds that are associated with trust accounts and banks.

Let’s assume you want to withdraw assets by writing checks from the investment of your money market fund then you can do it, instead you can redeem your shares through requesting for money via mail or any other available way.

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