Table of Contents
Chapter 1: What is the Money Market
Chapter 2: How to Invest in Money Market Accounts
Chapter 3: Types of Money Market Investments
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Chapter 2: How to Invest in Money Market Accounts
– Money Market Funds
– Money Market Account
Chapter 2: How to Invest in Money Market Accounts
Usually investments in the money market require a large amount of funds. These instruments trade in denominations that could sometimes be as high as $1 million or even more. It is difficult for individual investors to raise this kind of money.
In order to make these investments available to small investors, some financial institutions offer money market funds and money market accounts. However, it is also possible to buy lower denomination instruments like Treasury bills directly.
A money market fund pools investor resources to create a large fund, which is then invested in safe debt securities with a short life span. The diversification within the fund further reduces the risk over the many underlying instruments.
Small investors find these money market funds an easy way of participating in the money markets with a small initial investment. These funds must conform to the SEC’s stringent regulations. The quality of the underlying investments, term and diversity are regulated under the Investment Company’s Act. SEC regulations also ensure that the risk of default by borrowers remains very low.
There may not be much appreciation in the value of a money market fund but returns are steady and more or less guaranteed even in the case of non-government securities. The highly liquid nature of these funds allows investors to pull out their money quickly when other opportunities arise or when there is an urgent expense that needs to be met.
This is an account held by a bank on behalf of the investor. The funds in the Money Market Account (MMA) or Money Market Deposit Account (MMDA) are deposited by the bank in safe debt securities offered by the government or companies. These accounts yield an interest in line with current money market rates. MMAs sometimes also allow the holder to write checks. However, there are some restrictions on withdrawals because money market accounts are essentially investment accounts and are not meant to be used as regular checking accounts.
In addition to these options, you can also invest in money market instruments like T-Bills directly by buying them from the US Treasury. Depending on the term of investment, the desired return and the degree of safety required, you can choose from the different investment routes in the money market.
Next Chapter: Types of Money Market Investments
