Money market funds are a type of mutual fund that invests in short-term, high-quality debt securities. They have traditionally been viewed as a safe and stable investment option, but their reputation was tarnished during the 2008 financial crisis when the Reserve Primary Fund, a prominent money market fund, “broke the buck” and investors lost money. Since then, many investors have been wary of money market funds. However, recent changes to regulations and market conditions have made money market funds worth investing in again.
Variations In The Law
The Securities and Exchange Commission (SEC) passed new rules in 2016 mandating that money market funds keep a larger portion of their assets in cash and other highly liquid securities. Money market funds are strengthened in this way because they can more easily fulfill investor redemptions during times of market stress. In addition, the new rules mandate more frequent reporting of money market funds’ NAVs, giving investors more information and empowering them to make better investment choices.
The State Of The Market
For a long time now, investors have had a hard time getting a decent return on their cash due to historically low interest rates. But interest rates have been on the rise in recent months, which is great news for money markets fund holders. In proportion to the rise in interest rates, the yield on money market funds rises, providing investors with a greater opportunity for profit.
Reasons Why Money Market Funds Are A Good Investment
Investing once more in money market funds is a good idea because of the many benefits they provide. The first benefit is that they represent a safe way to put your money to work. The new rules provide money market funds even more resiliency in times of market stress because they invest in short-term debt securities that are generally considered to be low risk. Second, investors can get a better return on their money by putting it into a money markets fund rather than a savings account or CD. Finally, investors can get quick access to their money in money market funds because of the funds’ high liquidity.
In A Nutshell
It’s time to put your money back into money market funds. They are more robust in times of market stress thanks to new SEC restrictions, and investors may expect a higher return on their money when interest rates rise. Compared to other low-risk investment options like savings accounts and CDs, money market funds provide greater liquidity and a higher income. Before investing in a money market fund, a potential investor should give serious thought to their investment goals, level of risk comfort, and the fees connected with the fund.