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Know the Difference between Mutual Funds and Money Market Funds

Investors have to choose between MMF and MF irrespective of their short- or long-term goals. Both of the investment platforms are segregated on the amount of risk involved in their processing.

Typically, a mutual fund is focused on investments in stocks and bonds. There are thousands of stocks that cater to a different category of investments. Some of them fund highly volatile stocks; some invest only in blue-chip stocks while others are more interested in good quality bonds.  Regardless of the investment, there is a potential yet marginal risk.

Meanwhile, money market funds only deal with highly safe investments like the Treasury securities backed by the US government. The returns are guaranteed unless something disastrous happens in the economy. But, with less risk, the rewards are less too.

Let’s get into a deeper discussion

Mutual funds

Simply speaking, a mutual fund is a pool of funds. The money is accumulated from various investors which distribute the risk and improves the chances of a positive return. The investments are then guided towards municipal bond issues, company stocks, government treasuries and corporate bonds. Majority of funds are invested in a combination of these platforms.

Mutual funds companies charge a fee from investors in exchange for their services — the fee increases with the activity level of the fund. Companies also charge money for administration, advertisement, etc. You should be concerned about the tax ratio before buying a mutual fund. It is the percentage of your assets which will be taken away in as fees.

All in all, mutual funds are dedicated to outperforming the market using enhanced management strategies.  You must invest in mutual funds as your money is safe and the funds are used to back up specific industries.

Money Market Funds

MMF is focused on safeguarding the principal amount in any situation. It guides your money towards Treasury securities for a short-term period. Being extra safe it also allots funds to liquid investments with very low risk. The investments provide debt, which is often minimal.

MMF accounts create a low yet steady source of profit for investors. They do it by limiting each share’s net asset value at $1. Unlike mutual funds, MMFs are passively managed, which minimizes the expense ratio too. Also, sales loads used to buy MMF are insignificant.

Normally, MMF is used to save money that will be invested in future or to secure payments received after sales of other securities.

Conclusion

One has to decide on the right investment vehicle. Both the platforms provide an extensive playground for investors anyway. The choice depends on investors financial strategy as both of them can be simultaneously used to stabilize money matters.

In comparison to stocks, both MMF and mutual funds are a lot safer. But if you are here to make quick profits, then they cannot be of any help.

We advise our readers to wisely use the channels of investment per their financial vision. If still confused, you should invest the largest sum in MMF, then in mutual funds and liquid money into stocks.

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