Opt for Money Market Mutual Funds for extremely low risk investment

By Vineet at April 7, 2010 | 12:46 am | Print

We have different needs at different point of time in life, like when we are young we take higher risks and take chances but after marriage and children we become less adventurous due to family .Well, if you are looking for some investment which is less risky and where you can store your cash without much thought about higher gain then the money market mutual fund is best option for you.This investment buys short term debt obligations from highly rated companies and reliable government agencies. They provide a relatively low rate of return but expose investments to an extremely low risk of losing principle.


What Is Money Market Mutual Funds:

According to investorwords ,”An open-end mutual fund which invests only in money markets. These funds invest in short term (one day to one year) debt obligations such as Treasury bills, certificates of deposit, and commercial paper. The main goal is the preservation of principal, accompanied by modest dividends. The fund’s Net Asset Value remains a constant $1 per share to simplify accounting, but the interest rate does fluctuate. Money market funds are very liquid investments, and therefore are often used by financial institutions to store money that is not currently invested. Unlike bank accounts and money market accounts, most deposits are not FDIC insured, but the risk is extremely low (only those funds administered by banks are FDIC-insured, but some others are privately insured). ”

In other words, according to investopedia ,money market mutual funds offer a convenient parking place for cash reserves when an investor is not quite ready to make an investment or is anticipating a near-term cash outlay for a non-investment purpose. Money market mutual funds offer ultimate safety and liquidity. This means that investors will have an expected sum of cash at the very moment that they need it.”

Requirement For Opening Money Market Mutual Funds:

Money market accounts require higher opening balances than other regular savings accounts . It would vary from $1000 to $2500.

Remember:

You have to give penalties and fees if your account went below the above mentioned amount. The share price is kept at a consistent one dollar per share. Interest on the money market mutual fund is usually reinvested in the account and can be withdrawn at the owner’s convenience.

You should also be aware that all money market mutual fund invests differently, so all have a different interest rate. Before investing in money market you should compare interest rates of all funds.. However, the interest rate fluctuates and past performance is no guarantee of future return. The interest rate generally shifts in the same direction as the prime rate of the Federal Reserve Bank.in US or Reserve Bank in india.

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