It is very old mutual fund. And have various advantages and disadvantages of investment. Moreover, regulation of fund is most important advantage of money market mutual fund. However, there are certain other benefits of investment. Hence, see difference between primary capital market and secondary capital market
Money market mutual fund advantages
Safety: when you plan to invest you look safety. And it is most important advantage in money market mutual fund. But investment objective is to preserve capital amount. Hence, see primary market introduction
Return on Investment: Income is earned on amount of money invested in mutual fund. Because, income earned is re-invested by purchasing new fund. In addition, money market funds often provide check-writing privileges for shareholders.
However, money market funds mature in less than 1 year. If you invest money mainly in debt instrument and T- bills. Further, it makes safe and effective investment. But, you can choose desired fund as per its maturity period and risk. Hence, best money market funds offer 8 to 8.5 % returns than savings account.
Disadvantages of Money market mutual fund
Further, before you decide to invest in money market mutual fund. It is important to check drawbacks. Hence, you can find below some of drawbacks. You can see Investment Company Fact Book and importance of Money market. Hence, check examples of money market.
Return on Investment
Mutual funds do not guarantee stable return on your investment. But there is option of drop. And fund might face price fluctuation that effect growth of your fund. Another important thing you need to keep in mind before investing. Probably, these funds are not insuring unlike bank deposits. If you have bought funds and company becomes bankrupt. You will lose out on principal amount of money.
Portfolio over diversify
However, fund diversification is advantage. Because, you can reduces risk factor involved in investment. And, over-diversify is not good. It happens when you invest more number of funds for particular industry. Hence, see money market and capital market difference.
Money market mutual fund is liquid in nature. It brings pool of money from various investors. At same time money pulls out for withdrawal. But these transactions needs lot cash on daily basis. So some amount of unused cash kept in fund. It is good for liquidity. Hence, if that money is lying in fund unused then it is not good for you. To know more details see functions of secondary market
Mutual fund investment comes with cost. Because, you will have to pay fees which are into two types. Like shareholder fees and operating fees. But these fees are mandatory. And it is part of process of buying funds. Hence, it is paid by every investor.
Finally, before you buy it is good to research about fund and company. And money market mutual fund is safe investment. For those who do not keep track on stock market and money market on daily basis. See summary of Key Money Market Fund Regulatory Requirements.