Debt Dictionary

Money Market Fund

Investment Dictionary -> Money Market Fund

Should anyone decide to invest in low-risk securities, he must be informed that a mutual fund type is required by law. It is called a money market fund. The interest rates are usually short term and these types of funds are generally considered low risk when compared to other mutual funds.

The prime investment targets for the money market funds are securities, known for their low-risk, such as certificate of deposit, government securities, and commercial papers. They aim at keeping the net asset value per share at 1$ with only the profit margin going up or down. It may be the case, however, that when the investment is bad or performs unsatisfactory, the NAV may drop under $1 per share. While rare it is still possible that losses to occur in money markets.

In contrast to a bank money market account for depositing, the funds have not been issued by the federal government. The Treasury Department of the U.S. declared on 19th of September, 2008 the founding of a guarantee program for the mutual fund industry of the money market in United States. The money market funds are subject to rule 2a-7 of 1940ís Investment Company Act, which are offered to the public and on record with the Commission for Securities and Exchange, and are able to enlist.

Prior to making an investment decision, in regard to a money market fund, it will be a good idea to acquire and revise all the information that is available for the fund. This includes the profile of the fund should it have one and of course, a recent report for the shareholders.
Mainly regulated under the 1940ís Investment Company Act, the money market funds rules are in force under it and in particular, Rule 2a-7, which is a part of it. Known as stability funds, they aim at limiting losses that may be a result of liquidity, credit or market risk.

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