Investing In Money Market Funds
The path to knowing how to interpret money market mutual fund rates requires some understanding of the money market. It is a term encompassing the activities of lenders and borrowers of very short term loans, usually less than 3 months time. The interest rates on the loans are higher than those obtained from a bank for the lender and lower for the borrower.
A large bank pools its resources to buy into money market securities using the deposits of its customers. This means the customers reap the benefits of the high interest rates of the money market. Such an account is called a money market account. The interest is usually less than that one the bare instrument because the bank takes a cut.
But another way of buying into the money market is to open a brokerage account and purchase shares in a money market mutual fund. Brokerages pool the money of investors and give them ownership over the shares which can reap returns when sold. The brokerage takes a small in terms of fees but otherwise gives up the dividends to the customer.
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.
Is a money market fund better than other funds? Consider a less appreciated gem in the financial world: the GNMA mutual fund. In the time of the economic disaster perpetrated at least partly by the property meltdown of 2007, Freddie Mac and Fannie Mae exhibited hemmorhaging losses prompting a statement from the Treasury to prevent investor panic. Ginnie Mae discovered that it was in a vastly improved position, displaying almost no sign of being in dire straits. A mutual fund holding 85% or more of assets in GNMA-related securities is considered a Ginnie Mae fund.
How do money market funds compare to bonds? The loaned resources is as a bond which is essentially a promise to repay the borrowed money plus a little extra interest. Private investors, companies and even countries buy bonds offered by the United States government on account of historical reliability and robustness of the American industry.
Article Source: FxTradingStock.com
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Discover the latest information and writings in regards to purchasing best mutual funds. Additional resources supplied for rates money market mutual fund can be located here.
by: Sarah Cole
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Date: Sat, 31 Jul 2010
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