If you were invested in a money market fund, you would only experience a reduction in the yield, without a gain in the capital value of your investment.Money market unit trusts and income funds are alternative interest-generating investments that investors could consider, especially if they want flexibility to access those funds.A money market unit trust is not a bank account, but a collective investment scheme offered by investment management companies.
As these funds invest in short-duration money market instruments, the returns will be linked to movements in interest rates. The funds are invested with various financial institutions and the fund manager targets a return above a bank deposit. The fund managers negotiate wholesale rates with banks and receive better interest rates than an individual.
However, as money market funds are diversified across multiple financial institutions, the risk can be lower than if you had all your money with one institution that defaulted. If a money market fund is offering an interest rate well above other money market funds, it could suggest that a higher risk is being taken, so do your homework.
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