In the lead up to Investor Education Month, I asked readers (via Twitter) if they had any inveting questions they would like us to answer. Our first questions, from @cr8tivecandy was:
Explain money market funds & how they work. Stocks I get, but currency funds? Buh?
OK. Good question.
To start, lets define a mutual fund.
A mutual fund is a type of investment fund where you buy “units,” and your money is pooled with the money of other unit holders. A professional fund manager invests this money on behalf of all unit holders, according to the investing guidelines of the fund. The main advantages are that you can invest in a variety of investments for a relatively low cost and leave the investment decisions to a professional manager.
With a money market mutual fund, the fund manager invests only in short-term (one year or less) debt securities, such as Canadian federal government treasury bills, federal government-guaranteed notes, provincial government treasury bills and promissory notes.
Money market products are often available only with large initial investments, but by pooling your money with others and investing in a money market mutual fund, you can invest in these funds with smaller amounts of money, or through a regular monthly or bi-weekly contribution. You can sell your units and access your cash within one business day, making them an ideal choice for a short-term place to stash your money for a short-term savings goal.
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{ 3 comments… read them below or add one }
My Dad always told be to use money market funds as a place to hold cash before you are ready to buy into the stock market. That way, while you wait to buy in, you can earn more money than you would if it sat in a chequing account.
Money market mutual funds pay next to nothing in interest, and with the MER(fees) you are probably loosing money. Better off putting your money into a high interest savings account.
More to think about – thank you for the info.