Your clients, Jessica and Ken, want to buy a house next year. You recommend a money market fund. How do you think a money market fund will help Jessica and Ken reach their goal?
A.
Money market funds are safe investments because their net asset value per unit does not usually fluctuate.
B.
Money market funds provide high returns without risking the capital invested.
C.
Money market funds pay income weekly which can be automatically reinvested.
D.
Money market funds provide investors a guaranteed fixed rate of return.
Money market funds are safe investments because their net asset value per unit does not usually fluctuate. Money market funds invest in highly liquid instruments like high-interest savings accounts, term deposits, short-term debt securities, cash equivalents, and other low-risk, short-term investments3. These funds aim to preserve capital and provide liquidity while generating some income3. Money market funds typically have a stable net asset value per unit (NAVPU) that does not change much over time3. The other statements are false. Money market funds do not provide high returns without risking the capital invested. Money market funds offer low returns that may not keep up with inflation or meet long-term investment goals3. Money market funds also have some risks, such as credit risk, interest rate risk, and liquidity risk3. Money market funds do not pay income weekly which can be automatically reinvested. Money market funds may pay income monthly, quarterly, semi-annually, or annually, depending on the fund’s distribution policy3. Investors can choose to receive cash distributions or reinvest them in more units of the fund3. Money market funds do not provide investors a guaranteed fixed rate of return. Money market funds do not guarantee any return or principal amount3. The return of money market funds depends on the interest rates and yields of the underlying investments, which may vary over time3. References: 7 Best Money Market ETFs in Canada 2023: Cash And HISA ETFs, Best Money Market Funds in Canada | WOWA.ca, 3 Best Canadian Money Market Funds (2023) - PiggyBank
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