In the lead up to Investor Education Month, I asked readers (via Twitter) if they had any inveting questions they would like us to answer. Our first questions, from @cr8tivecandy was:
Explain money market funds & how they work. Stocks I get, but currency funds? Buh?
OK. Good question.
To start, lets define a mutual fund.
A mutual fund is a type of investment fund where you buy “units,” and your money is pooled with the money of other unit holders. A professional fund manager invests this money on behalf of all unit holders, according to the investing guidelines of the fund. The main advantages are that you can invest in a variety of investments for a relatively low cost and leave the investment decisions to a professional manager.
With a money market mutual fund, the fund manager invests only in short-term (one year or less) debt securities, such as Canadian federal government treasury bills, federal government-guaranteed notes, provincial government treasury bills and promissory notes.
Money market products are often available only with large initial investments, but by pooling your money with others and investing in a money market mutual fund, you can invest in these funds with smaller amounts of money, or through a regular monthly or bi-weekly contribution. You can sell your units and access your cash within one business day, making them an ideal choice for a short-term place to stash your money for a short-term savings goal.
