3 Types of Money Market Funds

Money market funds are a type of mutual fund that is considered very safe. These types of mutual funds invest in money market instruments in order to give investors a good place to park their money between investing in other securities. Although all the market mutual funds are similar, there are different types of funds that you could invest in. Here are some of the most popular types of money market funds currently available.

1. U.S. Treasury Securities

One common example of a money market fund is a fund that invests only in U.S. Treasury securities. This means that the fund manager uses the investors' money to purchase only securities from the Treasury. With this type of money market fund, an investor can feel safe knowing that her investment is secure. Many times, this type of money market fund is considered the safest type of investment available. You know that all of the investments in the fund are backed by the U.S. government, and unless you feel that the government will go under, you should feel good about your investments. 

2. GSEs and Treasuries

Another type of money market fund is one that utilizes a combination of Treasury securities and securities issued by government-sponsored enterprises, or GSEs. Including GSEs in the portfolio provides the fund manager with many more options to choose from. There are many companies out there that are sponsored by the government and come from several different industries. This allows the fund manager to potentially increase returns and diversify the portfolio. Investing in GSEs is considered just as safe as investing in Treasury securities. These GSEs may have implicit or explicit guarantees from the federal government. This means that if the companies were to falter, the government would step in and provide financial backing to them. 

3. Variety

Another type of money market mutual fund invests in a variety of money market instruments. This type of fund may purchase Treasury securities and GSE securities as well. This type of fund also invests in commercial paper. This type of investment is a short-term loan between businesses considered to be good credit risks. Most of the time, these loans are designed to last for only 30 to 90 days. 

One of the benefits of investing in this type of money market fund is that it is diversified. You get investments from many different markets and sectors.

At the same time, this type of fund can be a little bit riskier than the ones that focus on government securities. When you invest in commercial paper, you have to be very careful which companies you put money into. In the past, some companies have defaulted on the debt, and it has negatively impacted the money market fund.

blog comments powered by Disqus