Money market funds invest in a variety of financial instruments that are considered to be conservative and less risky. We detail them here.
Money market managers choose from multiple alternatives
What do money market managers invest in? One of the main characteristics of money market instruments is their low risk when it comes to chances of a default. So, a typical money market fund portfolio consists of:
When it comes to advantages and disadvantages of money market instruments, their relative safety is a major plus. And so is the ability to withdraw funds quickly. The negative side is their low rate of return. After all, the lower the risk, the smaller the return.
Trillions of dollars are invested in money market funds of all kinds whether these are retail, institutional, or tax-exempt funds. Many small retail investors have their cash automatically put in money market funds since many brokerage houses park the cash coming from sold investments into these funds until the next investment is made. The returns on money market tend to be higher than on regular bank deposits and the funds are easily redeemable. This makes it somehow attractive for many investors and savers, whether individual or institutional.
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