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I want to put my money in money market funds. Help!?

  • I'm a little bit confused. I just want a better parking lot for my emergency funds, meaning something that can give me better returns. My current account in time deposit yield 2.75% per annum, of which I am not satisfied. I came across money market funds as a better parking lot for emergency funds according to the internet. The problem is I want to educate myself first about it. Here are my questions. 1.I saw that money market funds have a NAVPS. For instance, the current mmf that I am looking at has 1.0534 NAVPS. If I buy now at 1.0534 NAVPS and tomorrow it changes to 1.001, it means I lost money right? Hence, how does it differ with stocks if it is so volatile? does it mean I have to analyze it same way as stocks (I use technical analysis in approaching stocks) Can you help me understand? Earlier, I thought that mutual funds require less monitoring as compared to stocks. But as how I understand it, you have to still monitor it daily as the NAVPS may change. Thank you1

  • Answer:

    MMF invests in bonds of very short maturity, Govt. T-bills and Call money market. Since the paper they hold is of very short maturity, it is almost impossible that they will give you a negative return on a daily basis. If you buy a MMF at 1.0534 today, its price will always be (99.99% accuracy) higher on the next day.

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MMF invests in bonds, GIC etc. By far, that's one of the most investment and you won't not lose money, guaranteed. The only thing being that bond as well as bond yields also fluctuate. When the bond goes up, the yield goes down. That's why you see the MMF also fluctuate, but not by that much.

Eddie W

A money market is more like a savings/CD except their is no FDIC. I fail to see why anyone would park money in them. Banks can compete for deposits. It's about the same principle with a money market fund. One bank offers a higher rate and you can change bank accounts or leave it in that bank. Same thing with credit cards. Transfer for a lower rate or what ever you want to watch credit card or bank rates. As for mutual funds, technically your not suppose to need to monitor as with individual stocks, while it's a managed fund. However, because people use mutual funds the same as stocks in the market, if a crowd decides to sell off their Energy mutual funds because of some news, their is nothing you or the fund manager can do to curb this activity and it happens all the time. Most people in to long term invest 401K/IRA in mutual funds and may ride this activity out through the years. If you don't have 5 to 10 years, you would need to monitor a mutual fund and/or just use ETFs instead.

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