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What is a money market fund?

As their name indicates, these are funds that invest in the money market (treasury bills, bonds, etc.) in the very short term. Unlike fixed income funds, the investment cannot exceed six months.

Money markets are the markets where cash and assets are traded. Their main objective is to enable both economic agents and investors to preserve part of their wealth in the form of securities that yield an acceptable return and a high degree of liquidity.

Since they invest in highly liquid assets with very low risk, monetary market funds are especially suitable for people who want to carry out very short-term investments as an alternative to deposits.

There are three types of money markets:

  • Interbank money markets, composed of credit and loan transactions such as short-term derivatives, short-term interest rate swaps, interbank deposits and other assets with a maximum maturity of one week.
  • Business asset market, made up of company promissory notes and an excellent financing option for many businesses.
  • Government debt money market, formed by the government debt issued in Spain by the treasury.

The return obtained from money market funds is directly related to the monetary policies of the European Central Bank, which is the institution that sets the short-term interest rates.

Money market funds are classified into three groups according to their net asset value:

  • Variable net asset value funds offer acquisitions and redemptions at the net asset value price per unit of the fund.
  • Low volatility net asset value funds offer constant prices up to a defined limit.
  • Government debt net asset value funds offer a fixed value and have to invest most of their assets in government debt.

Money market funds are a good option if you want to keep a percentage of your overall portfolio in low-risk, highly liquid assets.

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