What Is a Money Market Fund?

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What are the differences between money market deposit accounts and funds?

What Is a Money Market Fund?

Even the simplest form of investment carries some confusing aspects, and money markets are no exception. When talking about money markets, investors could be speaking about two completely different things:

  • Money market accounts
  • Money market funds
Money market accounts are simple to understand--they're like savings accounts, except that your deposit can be invested in short-term securities like Treasuries in order to develop a return.

Money market funds, on the other hand, are a completely different animal.

What is a money market fund?
A money market fund is like a mutual fund. It's an investment that you can buy shares of and hold in your brokerage or retirement account. Shares are generally purchased at NAV. NAV is short for net asset value, which is the value of the fund assets minus any liabilities. NAV is generally kept at $1.00. The fund is comprised of many underlying investments, including CDs, bonds, and other low-risk positions. These investments create growth within the fund that is paid out as a dividend to investors.

Money market funds offer no guaranteed growth and are not a fixed investment like CDs. Their redemption value can vary but does not generally dip below NAV.

   

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