Investing For Beginners – Free Investment Articles and Tutorials

The money market is a part of the fixed income market. Money market specializes in very short-term debt securities that pay interest and have maturity date. Governments, financial institutions, and large corporations issue money market securities. Money market securities are very liquid that is it can be easily converted into cash in and are considered to be extraordinarily safe, as they are extremely traditional; money market securities offer significantly lower return than most other securities. Money market securities trade in terribly high denominations. Treasury bill is the most marketable money market securities. Money market limits the access of the individual investor. The money market is a dealer’s market, which means that firms buy and sell securities in their own accounts, at their own risk.


The easiest way for an individual to gain access to the money market is through money market mutual fund, or through money market bank account. Money market accounts and funds group together the assets of thousands of investors in order to buy the money market securities on their behalf. However, some money market instruments, like treasury bills, may be purchased directly. Failing that, they can be acquired through other large financial institutions with direct access to these markets.

Risks Involved in the Money Markets

There are primary two forms of risk associated with money market that are income risk and inflation risk. Money market yields can fall sharply in a relatively short period of time. Short-term yields have been much more volatile than long-term rates over time. Returns may not keep up with inflation, leading to purchasing power erosion for the investor.

Money market mutual funds invest in high-quality, short-term debt instruments and maintain dollar-weighted average portfolio maturity of 90 days or less. Benefits of money market fund are safety. Money market funds invest exclusively in dollar denominated high-quality, short-term instruments issued by the federal government, corporations, municipalities, and banks. Stability- Money market funds are managed to maintain a constant $1.00 net asset value (NAV) per share. Liquidity- Money market fund shares can be purchased or sold at any time at the fund’s current share price. Short-term holding- Investors use money market funds to hold cash between investments. Diversification- because money market investments are considered less volatile than individual stocks or stock funds, investors interested in moderating fluctuation in a stock-heavy portfolio may want to invest in money market funds to help reduce volatility. Tax benefits-Money market funds can provide state and federal tax-free income, which can be beneficial for those in higher tax brackets.

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