Best Money Market Funds Keep Your Assets Liquid

2007-03-08 10:33:40

( Financial )



The objective of money market funds is to provide liquidity with a higher return than traditional savings or checking accounts. Money market funds are mutual funds that invest in interest-bearing short term securities. These include Treasury bills, high quality short term corporate debt, and certificates of deposits.

Money market funds are conservative and liquid investments. Most of the securities where money market funds are invested mature in less than 120 days. These funds are managed to maintain a rate of a dollar per share.

Finding best money market funds requires careful planning and shopping, as well. You must assess whether you would like to hold these as securities or through a mutual fund. If you consider your convenience, it would be better if you use mutual funds, like Fidelity Money Market Fund and Vanguard Money Market Funds.

Generally, there are two types of money market funds, namely, taxable money market funds and tax-free money market funds. Taxable money market funds pay dividends that are taxable to you. If you belong to a high tax bracket or you have a sizeable amount in money market accounts, the best money market funds would be the tax-free funds.

The interest paid out to your money market funds varies depending on the prevailing interest rate trends. Money market funds are very sensitive to movements in Federal fund rates. When the Federal fund rates increase, money market fund rates also increase. Thus you can find the best money market funds closely matching interest rate movements. At this time, your investment will give you a higher return.

Before you purchase a money market fund, you have to gauge your personal risk tolerance. If you have a low risk tolerance, the best money market funds for you are the government money market funds. Government money market funds mature not much different from corporate money market funds. And being backed by government, the money market funds are risk-free and tax-free.

You must realize that although money market funds’ returns are higher than traditional savings investments, these returns are not that extraordinary. Most often they bear only about one percent or even lower. But these investments are safe and can be your good resources for emergency funds.


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