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Wednesday, September 24, 2008

Money Market Funds

From The Hoss's Mouth

Money Market Funds are featured in today's Hoss Cents Free Financial Money Magazine. Money market funds are a safe hitching post to park your cash. Income or growth potential is very low but in times of unstable stock markets they are a good place for your money.

Money Market Funds are appropriate for the investor who wants liquidity, stability of capital, and an interest income higher than savings accounts. If you and your financial adviser have determined that you have a very low risk tolerance level, a MMF would be perfect for you.

When shopping for a Money Market Fund, you and your financial adviser should consider no-load funds only. The returns on money market funds do not vary much, so The Hoss cannot see any advantage to purchasing a commission-based Money Market Fund. Also, closely review the fund's expenses, which are outlined in the prospectus.

The investment objectives of most money market funds are to preserve capital and provide a steady level of income for the investor. It is the intention of the fund company to maintain the per unit price at a constant level, usually ten dollars, but the prospectus may contain a clause that states there is no guarantee that the unit price will not fluctuate.

Money market funds usually invest in a well diversified portfolio of short term securities such as, government or government guaranteed treasury bills (T-Bills), asset-backed commercial paper, certificates of deposit, and bankers acceptances. The funds are conservatively managed, and the average term to maturity varies, but never more than 364 days.

Distribution of interest earned is paid monthly and can be deposited directly into your bank account, paid by cheque, or reinvested in units of the fund. Most fund companies will automatically reinvest in units of the fund unless otherwise directed by the investor.

To sum up, you will not make a large return from a money market fund, but your money is relatively safe and can be accessed quickly.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: Bond Mutual Funds

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