Mutual Funds: About Money Market Funds
Money Market Fund Basics
Money market funds have relatively low risks compared to other types of mutual funds and many other types of investments. Investor losses
have been rare, but are possible. Money market funds are limited by law to certain high-quality, short-term investments.
Dividends paid by money market funds are generally close to short-term interest rates.
Money market funds can be a good place to “park” some money for the short-term. This lets you earn a higher interest rate
than the paltry rates paid by most standard bank checking accounts.
With their lower risk, however, money market funds have lower returns that bond or stock funds.
With money market funds, there is risk that inflation will outpace and erode investment returns over time.
Money market funds try to keep their value (NAV) stable at $1.00 per share. However, the NAV may fall below $1.00 if the investments
perform poorly.
A “money market fund” is not the same as a bank “money market deposit account.” Though the names are
similar, they are very different:
- A money market fund is a type of mutual fund. It is not guaranteed. Your principal is at risk. It comes with a prospectus.
- A money market deposit account is a bank deposit. It is guaranteed, and comes with a Truth in Savings form.
Next: About Bond Mutual Funds
