Money market mutual funds are just one of the many types of mutual funds you can choose for investing your money. Like other mutual funds, money market mutual funds pool the money of many investors and buy shares in several different companies within the fund. Mutual funds are a great way to diversify your portfolio without doing a lot of research and to take advantage of the professional management you get with a mutual fund. Mutual funds of any type are good for new investors or those who simply aren’t interested in researching each individual stock or share they might purchase.
Money market mutual funds are those funds that invest solely in money market instruments. However, they are not money market accounts, and the differences are important. Money market accounts are essentially a special type of savings account, and they are federally insured like bank accounts. Money market mutual funds invest in a wide variety of money market instruments, and are dependent upon the performance of this particular instrument. So, money market mutual funds are like owning stock shares of the money market funds that banks are selling to their customers. Though they are lower risk than many other mutual funds, it is possible to lose money.
In the world of mutual fund investing, money market mutual funds are some of the safest you can buy. You’re investing in the money market accounts of large banks in many cases, where the risk of a default on the money market instrument is extremely low. However, money market mutual funds typically pay their investors a better return than other mutual funds that invest in other similarly safe investments.
Another advantage of money market mutual funds is that they are typically very easy to get into with a small investment, making them available to beginning investors. Even if you just have a small amount to invest, using a money market mutual fund will allow you to invest your money in a safe place with a relatively good return.
One thing you should look at when considering money market mutual funds are those that are tax free. These mutual funds invest in short term debt obligations issued by federally tax exempt entities. These money market mutual funds are often lower yield than others, but may still be a good investment for you because of their tax exempt status. It’s important to investigate these money market mutual funds carefully so that you know exactly what your tax obligations will be.
Like all other mutual funds, money market mutual funds carry fees. It’s important to understand exactly what fees you’ll be charged, so that there are no surprises. Your mutual fund may be subject to an initial sales fee, a management fee and fees each time you complete any sort of transaction within the fund. Different mutual funds have different fee structures, so it’s wise to ask before you buy.
Money market mutual funds are a good way to safely invest your money and receive a good return. You’ll be able to get into a money market mutual fund with a fairly small investment and can expect your mutual fund investment to be managed by a professional. If you’re looking for a way to diversify your portfolio that’s low risk with good return, a money market mutual fund might be a good investment for you.