Money market funds are mutual funds that invest in the "money markets". If you imagine that people buy and sell stocks in the stock market, then you can see how people buy and sell money in the money markets. This means a legal loan shark, or other wise known as a bank.



Just like your savings account at the bank, you earn a dividend of interest on your money you have invested. However instead of a quarterly dividend being dropped into your account, you are getting a piece of the pie every EOM: or end of the month. Money Market funds invest in short term instruments that mature in less than 13 months. By doing this they reduce the amount of risk. It is basically like this, the longer you have your money lent out to someone the less chance you have of getting back.

Therefore, what risks are you taking when you invest in a Money Market Fund. Well a money market fund is technically a security. The managers of the fund try to keep the share price at $1 per share. Although, there is no guarantee that the price will stay at $1. And if the share price goes down, you can lose some or all of your principal investment. And for this risk, you earn a greater return.

Money market fund rates are never constant. In other words, you are playing with variables and you'll never know how much your getting at the end of the month. The rates could go up or down. When it goes up, you earn money. On the other hand, if it goes down you earn less than you expected or even loose capita from your principal investment.

The last you are taking with money market funds has to do with inflation. If you plan to have your investment in for a long time, inflation may slowly but surely eat away at your money. That is why it is best to keep it short and sweet.

Why should you use money market funds? It is a relatively safe investment with a descent return. The money you put in is not frozen; this means you can get your money out-a there within a few days. You can also take advantage of rising interest rates by keeping your money in an investment that will adjust to the markets. In addition, a lot of companies allow you to write checks that take from a money market fund. That means you get the advantages of a checking account while earning cash at the end of the month. It is like a savings account with out the bank haggling you about too many transactions.

Where can you get a money market fund? When it comes to money market funds, you have many choices. They are relatively easy to find at brokerages and mutual fund companies - your free cash is sometimes swept into a money market fund automatically. More over, a lot more banks are offering money market funds to their customers now.

You can learn more about money market funds is the funds prospectus. You should always read one of these before buying any fund, and you can really learn a lot by reading the prospectus from several different funds. One of the best I have used is PayPals Money market fund. I have always seen the highest percentage rates here as opposed to any local banks.

Now with this new found information you can become a loan shark and not get hunted down by the FBI. There is a lot of money to be made in Money Markets, You should go out there and get your piece of the pie before I eat it all.