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Basics of money market investments

Basics of money market investments

There are a number of investment products in the market. However, not every investor is acquainted with every type of product and the features offered by each of them. The money market is basically a market that offers short-term investment opportunities. It includes investment products that have a maturity ranging from one day to one year. Investing in the money market generates high liquidity for investors and allows them to meet their short-term debts. It is an ideal investment option for those who do not want a long investment tenure and would like to have quick access to their funds.

You need to bear in mind that investments are not like a bank account and their returns are not guaranteed. This means your investment could grow as well as lose value over a period of time. When you invest in a money market fund, the amount is invested in debt instruments that have a short maturity period. This includes a certificate of deposit, government agency obligations, and repurchase agreements. However, there is no guarantee of returns on the investment you make in money the market; therefore proper wealth management is necessary.

What are money market investments?
Investing in the money market is simple and transparent. You need to understand that it offers a higher return than any other bank account or investment product. This is mainly why it is preferred by a lot of investors. It will help you achieve stability and maintain diversification in your portfolio. If you have invested in a lot of long-term investment products, money market instruments will help you maintain balance in the portfolio. The quality of credit for these investments is generally high. Keep in mind that they are not risk free; rather, they have a low risk and are suitable for conservative investors.

It is not advisable to invest all your money into these funds as it could hurt your potential to grow the portfolio in the long run. Since the instruments are short-term in nature, you have no choice but to accept the amount you receive at the time of maturity of the same. The returns on the investment are in line with inflation before considering an income tax. Hence, the value of the maturity amount may fall after the deduction of income tax. Take a well-informed decision when investing in the money market as it will have a substantial impact on your overall portfolio.

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