Money Market Mutual Funds Flashcards, test questions and answers

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What is Money Market Mutual Funds?

Money market mutual funds are an important part of the investment landscape. They offer investors a safe, liquid option for parking cash and earning higher returns than a traditional savings account. Money market mutual funds have several advantages over other forms of investments, including low costs, safety of principal and liquidity, as well as solid yields. Money market mutual funds invest in short-term debt instruments such as government bonds, certificates of deposit (CDs), and commercial paper issued by corporations. The fund manager is responsible for diversifying the portfolio to spread risk across different debt issuers and maturities to ensure the fund’s yield remains consistent over time. Because money market mutual funds invest in high-quality securities with short maturities that are highly liquid, these investments tend to be very safe. There is very little chance that you will lose your entire principal investment in a money market fund due to credit or interest rate risk associated with longer-term investments like stocks or bonds. The cost of investing in money market mutual funds is usually quite low compared to other types of investments such as stocks or bonds. Money market mutual funds typically have no sales charges when purchasing shares directly from the fund company and many have no ongoing management fees either; however some may have administrative fees or other charges that should be considered when selecting a fund. The yields on money markets may not be spectacular compared to other investment options, but they are usually more than what you can get from an average savings account at your bank or credit union and much safer than investing in stocks or bonds individually without professional help. In summary, money market mutual funds provide investors with an ideal way to park cash while earning higher returns than most savings accounts offer without putting their principal at risk due to credit rating changes or changing interest rates associated with longer term investments like stocks or bonds. These funds also tend to have very low costs which makes them attractive for those who want solid returns without having too much involvement with managing their own portfolio actively by themselves.