The term money market fund is used for the mutual fund that is used to invest in high-quality, short-term debt instruments, cash, and cash equivalents. These money market funds are known for their extremely low-risk investment. It is also known for generating income that can be taxable or tax-free but with less capital appreciation. The income it generates depends on its portfolio. It is better for these funds to be parked temporarily before you invest it elsewhere. It is noteworthy that money market funds are not suitable for long term investments.
MONEY MARKET FUNDS AND MONEY MARKET ACCOUNT:
Money market funds and money market account sound somehow similar but they are different. Money market fund is more concerned with investments and is sponsored by investment fund companies while money market account usually pays a higher interest rate as compared to a saving account. So, the money market account is more like a saving account.
- These funds are highly liquid.
- Money market funds are well-known for their safety.
- You get better returns as compared to any bank account.
- Money market funds do not provide any capital appreciation.
- Sensitive to the interest rate fluctuations.
- Crucial impact if monetary policy.