Write down three things to check: redemption timing, management fees, and the investment policy.
A money market fund is a mutual fund that invests in short-term assets with relatively low risk.
A daily money market fund allows redemptions on trading days according to its terms. It is not a checking account and not a deposit with a guaranteed interest rate. The return is influenced by the interest-rate environment and management fees. In funds with fixed terms liquidity is different, so read the fund’s conditions.
If you need to pay on Saturday, do not assume you can redeem a fund and get cash immediately. Daily liquidity is not available at every moment.
Write down three things to check: redemption timing, management fees, and the investment policy.
Liquidity and risk answer different questions. A product with redemption requests on trading days does not promise immediate access at every hour or a fixed return. For a money market fund, examine investment policy, redemption timing, costs and underlying assets. Put these four items beside a deposit and a checking account in a comparison table. The name “money market” does not make the fund identical to cash.
Concepts that help you compare
Deposit, Checking Account or Money Market Fund?
A deposit is an agreement with the bank to place money under specified interest and for a set period. A checking account is used for regular payments. With a deposit you check the interest rate, the period and exit points. With a money market fund you check the policy, costs and redemption terms; the return is not predetermined as a guarantee. Choosing requires understanding the goal and the terms, not just comparing a single number.
Comparison example: An offer for one year and an offer for one month are not the same even if both show the same annual interest rate.
A fund pools investors’ money and invests according to a policy. “Tracking” describes the method; “ETF” also describes the way it is traded. ETF units trade on an exchange during the trading day, at a price influenced by supply and demand and which can deviate from the fund’s net asset value per unit. In an open-ended mutual fund that is not traded continuously, purchase and redemption orders are executed according to the fund’s pricing dates and rules, not like a share every second. A money market fund is a type of mutual fund for short-term assets, and is not a share or a guaranteed deposit. An ETF abroad can be passive (tracking) or actively managed. Funds in different countries have different rules.
Comparison example: The fund name is not enough: a bond fund, a money market fund and an equity fund can be very different in risk. Even if they are all called “fund”, check what they invest in and how units are redeemed.