Money market mutual funds have a special purpose in your portfolio. Knowing how to use them can be a useful tool when investing. The liquidity they provide in times of market turbulence or investor indecision offer a degree of comfort in the knowledge that their money is there when they need it. Generally not considered a good retirement account, money in these funds can be allocated to funds that are suited for the purpose.

Why do you need to use a money market mutual fund?

Money market mutual funds can provide a service to every investor. They provide liquidity, a term that describes easy access to your money when you need it. They also provide safety, a conditional guarantee that a dollar put in a money market mutual fund will be a dollar you can withdraw.

When do you use a money market mutual fund?

Money market mutual funds are considered parking places for cash. Suppose you have constructed a portfolio of mutual funds and for whatever reason you would like to sell the shares in one of those funds only you have, for whatever reason, not made a decision which fund you would like to purchase. A money market mutual fund gives you a place to put the money from the sale until you decide which new investment you think would be best suited to your goals.

Where can you buy money market mutual funds?

Your retirement plan sponsored by your employer, the mutual fund family you own funds with, your broker and even your bank offer money market mutual funds. The average investor overlooks these funds in many instances because they are designed for safety, not for growth of invested money. They do however pay a small rate of interest.

How do money market mutual funds work?

Money market mutual funds invest in the safest, lowest risk investments available. Many of these funds maintain their liquidity by focusing a short-term debt issued by the Treasury, sponsored by the government or issued by banks.

What is in a money market mutual fund?

Some money market mutual funds invest in US Treasury securities, a highly valued, no credit risk investment. US Treasury securities in money market mutual funds may come in the form of bills (short-term debt obligations of less than year), notes (often referred to as T-notes with maturities of up to ten years), bonds (with maturities of 30 years) or even TIPS (a bond which is indexed for inflation).

Some money market mutual funds may invest in Government Sponsored Enterprise or GSE types of investments. Despite the name, these investments do not offer any direct obligations from the government, as do Treasuries.

Every mutual fund owner has access to a money market mutual fund. Every fund family offers a money market mutual fund. This is an excellent holdover spot for money waiting to be invested or for recently sold investments. And if you chose wisely, you may find this fund will exempt you from certain taxes.