A money market fund is a type of mutual fund that invests in short-term, low-risk securities such as government bonds, commercial paper, certificates of deposit, and other highly liquid and low-risk investments. These funds are designed to provide investors with a safe and stable investment option that can offer a better return than a traditional savings account.
Money market funds typically have a fixed share price of $1 per share, meaning that the price per share does not fluctuate like other types of mutual funds. The income generated by the fund is distributed to shareholders in the form of dividends, typically on a monthly basis.
The primary objective of a money market fund is to maintain a stable net asset value (NAV) of $1 per share. The NAV is calculated by dividing the total assets of the fund by the total number of shares outstanding. The fund manager invests in low-risk, short-term securities that have a maturity of 13 months or less. These securities are highly liquid, meaning they can be easily bought or sold on the open market.
Money market funds are regulated by the Securities and Exchange Commission (SEC) and are subject to strict investment guidelines designed to ensure that they maintain a high degree of safety and liquidity. Money market funds are considered to be very low-risk investments, but they are not insured by the Federal Deposit Insurance Corporation (FDIC) like bank deposits.
Overall, money market funds can be a good option for investors who are seeking a low-risk, short-term investment with a higher yield than a traditional savings account, but who also want to maintain easy access to their funds. It is important to note, however, that while money market funds are considered to be safe investments, they are not completely risk-free, and there is always the possibility that the fund could experience a loss or decline in value.
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