Money Market Funds
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Money market funds, sometimes referred to as a money market mutual funds are a type of open-ended mutual fund (hence the common reference to them as money market mutual funds) that investst in short-term debt positions for example the US Treasury bills and commercial paper. For those of you unfamiliar commercial paper, they are unsecured I-owe-you notes that have a fixed short-term maturity of as little as 1 day up to 270 days. Similarly, US treasury bills generally mature between 28 days (one month) and 364 days (about one year). Money market funds are particularly popular because of the security of investing in these short-term debt securities because it is essentially offering a loan in the similar way to a bank and gaining interest in the similar way banks do. As a result, it is often said that money market funds offer as close to the security of bank deposits as you can get in the investment world but with a higher return on your investment than banks offer.
The risk-management aspects of the money market funds is particularly attractive with the overall goal being to limit as much as possible, the credit, market and liquidity risks. Money market funds attempt to keep a stable value for their shares of £1 or $1 unlike the majority of other open ended investment funds. In the history of American money market funds, only three have ever fallen below this $1 value (in 37 years) which is a great example of how secure these funds are. This essentially means that they attempt to never lose money and keep a stable nest asset vale (often referred to as NAV) As well as commercial paper and US Treasury Bills, money market funds may also choose to invest in other forms of debt securities such as repurchase agreements, short-term bonds as well as other less common money funds.
It is important to note however, that while the funds are one of the most secure investment options available to both institutional and private investors, there would have been many a lot more funds falling below this $1 value if it wasnt for the fact the companies who were running the firms had stepped in an added money to the fund in order to stop the NAV falling below the £1 or $1 per share mark. The reason that they did this was because in most cases, the amount of money they needed to put in to maintain this value was a lot less than the amount they would lose in the damage to their reputation and the loss of clients should it be publicly known that they were one of only 3 or 4 companies in 37 years to ever let the NAV fall below the standard level.
The risk-management aspects of the money market funds is particularly attractive with the overall goal being to limit as much as possible, the credit, market and liquidity risks. Money market funds attempt to keep a stable value for their shares of £1 or $1 unlike the majority of other open ended investment funds. In the history of American money market funds, only three have ever fallen below this $1 value (in 37 years) which is a great example of how secure these funds are. This essentially means that they attempt to never lose money and keep a stable nest asset vale (often referred to as NAV) As well as commercial paper and US Treasury Bills, money market funds may also choose to invest in other forms of debt securities such as repurchase agreements, short-term bonds as well as other less common money funds.
It is important to note however, that while the funds are one of the most secure investment options available to both institutional and private investors, there would have been many a lot more funds falling below this $1 value if it wasnt for the fact the companies who were running the firms had stepped in an added money to the fund in order to stop the NAV falling below the £1 or $1 per share mark. The reason that they did this was because in most cases, the amount of money they needed to put in to maintain this value was a lot less than the amount they would lose in the damage to their reputation and the loss of clients should it be publicly known that they were one of only 3 or 4 companies in 37 years to ever let the NAV fall below the standard level.
