Money Market Funds: Choose A Secure Way To Save Money

When it comes to financial health, you know you can grow your wealth through smart investment options. While equity investments give you outstanding returns, they also expose you to a higher level of risk. This is where a money market fund can be a smart choice. 

Being a type of secure Mutual Fund, its highlighting feature is its predictability. Ideally, for short-term investments up to 1 year, you can consider this option. 

Read on to learn more about money market mutual funds if you plan to save for the near future while enjoying steady growth.

What Are Money Market Funds? 

Sometimes, you may have some extra money which you don’t need right away. If you have money in physical form or your savings account, you may tend to spend it. Instead, try investing it until you need it in an option that offers high liquidity. 

Let’s say there is a special kind of account in which you could start with excess funds and accumulate interest. It grows until the time you need the money. That is what exactly a money market fund does.

Financial institutions use money market funds to lend short loans. The fund is collected by pooling together many investor’s savings. In return, they give you a small interest amount. The amount is not very high compared to other funds but it’s best to invest in rather than let your savings remain idle.

Why are they Safe?

The loans from money market funds are given only to highly credible companies or the government, with the promise to pay back soon. As such, these loans have a very short tenure, so there’s less chance of something going wrong.

Apply for Short Term Loan

How do Money Market Funds Work? 

Here is a step-by-step process of how your invested funds are circulated in this investment scheme.  

• Pooling of the Money: Savings of many people looking for some interest on their money are pooled in a fund
• Giving the Loan: The people in charge of this fund are called fund managers. They give this loan to trusted institutions such as government entities and credible companies
• Collecting the Interest: The institutions that take the loan pay interest on the amount borrowed 
• Distributing the Earnings: The fund managers return the amount with a little extra from the earnings to all those who put their small savings in the fund

Some Types of Money Market Funds

A wide variety of these funds offer you the opportunity to invest as per your preference. Some common types are:

• Government Funds: These are given as loans to governments and government entities and are considered to be a safer option  
• Certificate of Deposit: These are offered to corporations for the short term and give slightly better returns 
• Treasury Bills: These are directed towards the central government for short-term needs 
• Repurchase Agreements: These are market investments backed by the government that involve the sale of security at the promise to purchase them later

Money Market Funds: Benefits 

Take note of these advantages to make an informed decision. 

• These are relatively safe options compared to the stock market 
• They are professionally managed, which is ideal for new investors as well as seasoned ones
• Money market mutual funds are open-ended schemes that offer high liquidity 
• You can use it to diversify your portfolio to mitigate the risk of equity investment 
• You can enjoy better returns than bank fixed deposits 
• You can invest extra money for a short tenure of up to 1 year

How to Invest in a Money Market Fund?

With these steps, you can start investing by choosing the best option. 

• Choose a Platform: Select a popular and well-known investment platform based on reviews and testimonials
• Compare Some Funds: Look for money market funds from reliable companies and compare them carefully in terms of historical performance, fund managers and expense ratio
• Invest Your Money: Put your money into the funds which you have shortlisted
• Watch It Grow: Your money will start earning interest right away; interest is generally added to the investment value daily

Who Should Invest?

Money market funds are great if you want to keep your money safe but still earn interest. They are perfect for saving money that you may need soon, like for a big purchase, a vacation or an emergency fund. Under a guardian’s or parent’s guidance, minors can also invest in a money market fund. This gives them the ability to grow their savings.

Risks to Consider Before Investing

• Fluctuations

Even though they’re safe, the value of your money in the fund might change over time. However, these changes are usually very small and won’t affect your savings much, especially if you’re saving for a short-term goal.

• Impact of Inflation

The main risk is that the interest you earn may not keep up with inflation, which means your money may not grow as much. 

By investing in such schemes, you can get high liquidity. Whether you choose these schemes or anything else, you can easily bridge financial gaps with the Fibe Loan Against Mutual Funds. With this option, you can get up to ₹10 lakhs quickly without liquidating your investment. Along with a simple online application process and minimum paperwork, you can continue enjoying the benefits of mutual funds returns. Apply now on the Fibe app or website to meet your financial needs. 

FAQs on Money Market Mutual Funds

Do money market funds pay monthly?

The interest on the investment is added daily to the invested value and has a maturity of 1 year. However, these are open-ended funds that can be withdrawn at any time.

How to buy money market funds?

You can use any financial platform to invest in a money market fund.

Can a normal person invest in money market funds?

Any person, including minors under the age of 18, can invest in these funds.