Money-market Mutual Funds or Individual Securities?

Should you invest in money-market mutual funds or individual money-market securities as are Treasury bills, CDs, banker’s acceptances or commercial papers?

Money-market mutual funds have fixed prices for their shares that give them lots of advantages over individual securities, for example these can be bought or sold without being taxed. However, the derived incomes of money-market funds are subject to taxes.

Buying and selling individual securities is not as simple as it is with money-market mutual funds. T-bills are liquid as also negotiable, but taken for at least three days to receive the product of the sales in the secondary markets. The other advantage that money-market mutual funds have over individual securities is that if you need cash earlier than planned you don’t lose your capital.

With the treasury bills, which are the ones with most liquidity of larger negotiations among individual investors there could be a loss or gain in the principal, due to fluctuations in the existing interest rates in the market.

Without taking into account T-bills any other individual investment could have more problems for their liquidation. With CDs, there are penalties for anticipated withdrawals. The only disadvantage money market mutual funds have is that sometimes the individual money-market investments get higher return rates.

Have in mind, however, that the purpose of money-market securities is to provide emergency funds and short-term cash a system to make extra profits and not to be there main income.