Money market funds, or money market mutual funds, are fixed income instruments. These types of investments accrue interest along with the eventual return of the principal at maturation. Many of these funds pay out interest periodically. Money market funds have extremely low volatility, credit, and liquidity risks. These instruments attempt to maintain a Net Asset Value (NAV) of $1 per share, but market funds intended for institutional investment must publish their NAV daily. This is called a “floating NAV.”
These funds are among the safest of investments, but the potential returns are often humble. A typical short maturation money market fund might produce around 0.25 to 0.50 percent interest. The interest rate grows even higher as the maturation period increases. Anyone who desires a safe and secure instrument with modest returns should invest in a money market fund.
According to Wikipedia, there are quite a few different types of money market funds, and maturation dates can range anywhere from 24 hours to a year or more. Some funds are made of government securities, and others contain bank or corporate debt. Money market funds are most commonly made up of government bonds, banker’s acceptances, treasury bills, or certificates of deposit. A tax-free fund can help the investor avoid federal taxation, but state or local taxes may still apply.
Investments placed into these funds are generally redeemable at any time, and redemption proceeds are paid within seven days. There is sometimes a fee associated with early withdrawal, and there are rare cases where withdrawals are not possible.
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