Money Market Fund
Definition and Purpose
In this section, we’ll explore the nuts and bolts of money market funds, dissecting what they are and what they aim to achieve for investors like us.
Overview of Money Market Funds
Money market funds are a type of mutual fund that we focus on for their low-risk nature. These funds pool our money to invest in high-quality, short-term debt securities.
They’re a popular choice for us because they offer liquidity and stability, often investing in government securities, certificate of deposits, and commercial paper.
| Characteristics | Description |
|---|---|
| Investment Type | Short-term debt securities |
| Risk | Low-risk investments |
| Liquidity | High (easy access to money) |
| Return potential | Typically lower than other mutual funds |
| Regulation | Governed by rules to maintain a stable NAV |
The Primary Objective of Money Market Funds
The core aim of these funds is to provide us with a safe place to park our cash and preserve capital. They seek to maintain a Net Asset Value (NAV) of $1 per share to offer stability.
Our secondary goal is to earn modest returns, but the focus always remains on minimizing the risk of losing our principal investment.
- Safety: Capital preservation is paramount.
- Stability: Aiming for a stable NAV of $1 per share.
- Returns: While safety is key, we also aim for returns that are competitive with similar risk-free investments.