✅ Stability: MMFs typically invest in short-term, low-risk securities such as government bonds. These investments are generally perceived as safer compared to stocks, providing stability to investors’ portfolios.
✅ Capital preservation: The primary objective of MMFs is to preserve capital while generating modest returns. By investing in low-risk securities with a focus on capital preservation, MMFs aim to minimize the risk of principal loss, making them a defensive option for conservative investors.
✅ Liquidity: MMFs offer high liquidity, allowing investors to easily access their funds when needed. This liquidity makes MMFs suitable for preserving capital and meeting short-term financial needs without incurring significant penalties or transaction costs.
✅ Diversification: Investing in MMFs allows investors to diversify their portfolios beyond traditional stocks and bonds. By adding an asset class with low correlation to equities, investors can potentially reduce overall portfolio risk and volatility, providing a defensive buffer during market downturns.
✅ Income generation: While MMFs prioritize safety and liquidity, they also provide investors with a source of income through interest payments generated by the underlying securities. Although the returns may be relatively modest compared to riskier investments, they offer a steady stream of income, which can be appealing in uncertain market conditions.
