1st Nov 2009 by Joseph Pousada
A money market fund is an investment company / mutual fund which is managed with safety and liquidity in mind. If you were purchasing a home in a few weeks you and your financial advisor may decide to invest the money in a money market to earn income until you use the funds for the purchase of the home. They key focus of a money market should be investing in securities with a short term maturity date and liquidity. Most money markets will price at 1 dollar per share and will typically generate income based on an interest rate that changes on a daily basis (referred to as the daily mill rate.) As unexciting at these investments may seem, it is very important to review any prospectus with your financial advisor. One reason is that some of the money markets will allow a certain percentage of the portfolio to be invested in securities that do not have a short term to maturity and even derivatives to try and enhance the yield. In addition, money markets usually price at 1 dollar per share but under certain circumstances have been known to price less than one dollar per share. (When they price less than a dollar it is usually referred to as “breaking the buck”.) Even if you are confident in a particular money market, your advisor can go over your personal situation and might find a tax exempt money market whose yield is more attractive considering your current tax bracket.
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