Hi TS,
i'd try to explain this. Forgive me if im mistaken.
Money market fund is basically a fund that puts money into very
safe instruments. E.g. fixed deposits. therefore the fund invests
in different fixed deposits at different times of the year, thereby
dollar cost averaging your fixed deposit return rates. There are
some pros and cons with regard to money market funds.
Pros:
- Liquid. You can put in your money anytime, and take it out
anytime.
- No sales charge. Unlike many other collective investment
schemes, e.g. equity funds, MMFs do not have an initial sales
charge. They do, however, have an annual management fee.
- Relatively safe. MMFs are not as volatile as equity funds or
bond funds, meaning your $1 today would unlikely become $0.50
tomorrow.
- There is an implicit guarantee. Although your money put in
MMFs are not guaranteed, their underlying instruments, e.g. fixed
deposits, are.
Cons:
- Low returns. Maybe its just me, but i've noticed that for
MMFs, their average return rate is quite low, ranging from about
0.3% p.a. to 0.6% p.a., even lower that our fixed deposits.
It's 3.40am in the morning and i can't think of any other cons,
sorry ..