Understanding money market mutual fund rates requires understanding what the money market is. The term money market stands for the collection of buyers and sellers of short term loans often meant for businesses who need money for less than 90 days and on short notice. It is not a real market in the sense that there is no physical location, but rather an abstract one that can be accessed through the exchange.
Investors enter the picture in two ways. The first is that they may put money into a money market account at a conventional bank. The bank pools the customers' money together to buy into the money market, and takes a small cut. Investors investing their money this way get a well-defined return over time but do not have control over the underlying security.
However, another way to invest in money markets is to buy into a money market mutual fund. This is a fund, usually with no load, that purchases money market securities on behalf of its clients who buy into the shares. Shares have an underlying value, but also pay dividends. The cut taken by the firm is less than that taken by the bank.
Money market deposit accounts can be located at big banks and other financial institutions. They are insured by the federal authorities. One is advised to be aware that a money market account is not to be confused with a money market fund account. The first is the product of a single bank and is associated with an interest rate. The second is a fund that is a aggregate of several money market instruments and is not guaranteed at one interest rate, rather appreciating at variable returns.
Money market funds usually do not have wild swings. Consider the GNMA, Freddie and Fannie Mac funds. All three are in charge of property borrowing but Ginnie Mae funds are thought to be the most conservative. Readers will recall in the last few years Freddie Mac and Fannie Mae got pounded in the real estate crash of 2007 and 2008. Despite this, Ginnie Mae got through the crisis and possibly is in a vastly superior position.
What about bond funds? Giant conglomerates and governments are required to carry debt in order to execute normal activities until ample tax is generated to repay the borrowed money. Such a large scale financing cannot be done using a normal bank, but instead should involve the selling of bonds which are guarantees of repayment. People put their money into bonds due to reliable promises of return and lack of default risk.
Investors enter the picture in two ways. The first is that they may put money into a money market account at a conventional bank. The bank pools the customers' money together to buy into the money market, and takes a small cut. Investors investing their money this way get a well-defined return over time but do not have control over the underlying security.
However, another way to invest in money markets is to buy into a money market mutual fund. This is a fund, usually with no load, that purchases money market securities on behalf of its clients who buy into the shares. Shares have an underlying value, but also pay dividends. The cut taken by the firm is less than that taken by the bank.
Money market deposit accounts can be located at big banks and other financial institutions. They are insured by the federal authorities. One is advised to be aware that a money market account is not to be confused with a money market fund account. The first is the product of a single bank and is associated with an interest rate. The second is a fund that is a aggregate of several money market instruments and is not guaranteed at one interest rate, rather appreciating at variable returns.
Money market funds usually do not have wild swings. Consider the GNMA, Freddie and Fannie Mac funds. All three are in charge of property borrowing but Ginnie Mae funds are thought to be the most conservative. Readers will recall in the last few years Freddie Mac and Fannie Mae got pounded in the real estate crash of 2007 and 2008. Despite this, Ginnie Mae got through the crisis and possibly is in a vastly superior position.
What about bond funds? Giant conglomerates and governments are required to carry debt in order to execute normal activities until ample tax is generated to repay the borrowed money. Such a large scale financing cannot be done using a normal bank, but instead should involve the selling of bonds which are guarantees of repayment. People put their money into bonds due to reliable promises of return and lack of default risk.
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