Remember that unlike banks, these funds do not publish interest rates. They are actively replacing their portfolio holdings. They buy higher-paying securities as money rates rise. As interest rates decline, higher-rate paper is replaced with lower-rate paper. Have a look at this for more info on this. They pass the interest on to investors after deducting costs, which can be as low as half a percent. As a result, the money they pay investors tracks or follows the real value of money in the money market.As a result, if interest rates rise in the economy, investors will immediately gain. My money market fund, for example, charged 13 percent in 1980, 17 percent in 1981, and 13 percent in 1982.
Then there’s the other side of the coin. Interest rates were at record lows in early 2009, with money market fund rates as low as one-fourth of one percent. The 3-month T-bill average in the United States was even smaller. In the meantime, many banks were promising higher interest rates to entice and retain clients.Some money funds specialise in government securities and only invest in them. Others make tax-free investments in short-term municipal debt. Keep in mind that money market funds paid extremely low rates in early 2009 when interest rates were at all-time lows. James Leitz is a former financial advisor with a finance MBA and 35 years of investing experience. He represented private investors for 20 years, working closely with them to help them achieve their financial objectives. Money market funds, also known as principal stability funds, are investment vehicles that restrict one’s exposure to credit, market, and liquidity risks. The Investment Company Act of 1940 of the United States Securities and Exchange Commission (SEC) governs money market funds. Commercial paper, repurchase agreements, short-term bonds, and other money funds are examples of qualified money market instruments. Money market instruments should be extremely liquid and have a consistent value. A money market account, which can be easily accessed from banks, is needed to invest in money market funds.
Also, money market funds are handled by experts, so the dividend you receive is determined after they have calculated their own market survival. It’s a lot less than what the banks would offer you.Should you put your money into money market funds? Of course, the decision is solely yours. Bear in mind that investing in this avenue will almost definitely not make you rich. The best alternative, of course, is to become financially informed so that you can benefit from the market’s genuinely profitable stocks and gain financial independence.