Money Market Fund: Close to Cash, But Different
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.
Bank of Israel · Money Market Fund ↗Check your understanding
Is the return of a money market fund guaranteed?
- Yes, like a fixed amount
- No
- Only if the bank shows it
Answer and explanation
No. It’s an investment with relatively low risk, not a guarantee of a fixed interest rate.
Daily liquidity means…
- Money is available every second
- Redemption options on trading days according to the fund’s terms
- No need to sell
Answer and explanation
Redemption options on trading days according to the fund’s terms. You need to consider trading days and the time it takes to execute a redemption.
Continue learning
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.
Inflation and Purchasing Power — Inflation is a rise in the general price level over time.