If you have read the Type of Mutual Funds you might come across with the money market funds. It is one type of the mutual funds exist in the investment world. It is a type of savings choice that you should know too.
Money market mutual funds have relatively low risk compared to other mutual funds. The fund is limited by law to invest only in high quality short term investment such as government securities. Though the risk is small, the possibility of losing money still there.
Here are some advantages and disadvantages of money market funds:
Advantages
1. Pretty Safe
Cash investment are viewed as safe because your money generally invested with reliable borrowers for only a short period. In addition the Securities and Exchange Commission requires that all taxable money market funds invest at least 95% of their assets in securities of the highest grade.
2. Higher Return
Generally dividend from money market funds are higher than savings account or certificate of deposits.
3. Cashing in
Most of the funds offer free check writing privileges and you can redeem your money at any time
Disadvantages
1. Inflations eats
Money market fund doesn’t really hedge your money against inflation. Usually the funds at the end only gives you a real profit of around 1% or less after hedging against inflation rate.
2. Risk
Though it is savings concept, money market fund is neither insured or protected by the federal government agency. The fund seek to become a stable fund, but there is no assurance on that.