Money Market Mutual Fund

How The Financial Crisis Rocked Money Market Mutual Fund Investments

Short term debt securities, also called money market mutual fund investments, or money market funds, have the strange feature of wanting to maintain a constant price of $1. It is possible to make a profit from the dividend which is paid out to investors, but it should never be possible for investors to benefit from rising prices. These investments are there to improve liquidity in financial markets, and they have traditionally performed well. It took the 2008 financial crisis to finally break the system.

The investor is able to make a small but virtually guaranteed profit on investment when investing in short term debt securities. The markets are able to use the money to stabilize their interests, as any money put into the market is invested in the shortest term debt securities. The weighted average maturity must be maintained at sixty days or less, and there are limits as to how much money can be put into any one investment. Government securities, which are guaranteed payable, are exempt from these limits.

However, in 2008 the $1 standard was breached for the first time though the system has worked exceedingly well so far since its inception. The reason was a corporate failure, and the need of the fund to pay back monies which were owed as a result. The ensuing crisis brought turmoil which could be compared to a run on the banking system. The money market fund system did survive, though, and although confidence has been badly shaken, it remains in place today. There is no sign that the long term depressed state of the economy is going to have a long term effect on these markets.

Standard money market funds are not the only way to invest your money, it is also possible to invest in ultra short bond markets. These are mutual funds themselves, created for the intention of investing in bonds which are very close to maturity. Again, the reason for the existence of this investment is to smooth out the extremities in the market, and to help the bond market to function as smoothly as possible. Due to the fact that the funds are traded so quickly, there is a potential for gain.

Money market mutual fund investments have an uncertain future, although the market appears to have stabilized since the crisis of 2008. Activity is low, as is inevitable when the very foundations of an investment are found to be wanting. It is unlikely that these events will be repeated in the near future, so if you are considering this investment there is no reason to change your mind. Unlike investing in a single stock, no-one lost every cent they had invested even during the worst market conditions. There is inbuilt stability with a money market mutual fund.

 

 

 

 

 

 

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