Are you looking for a safe and secure way to invest your money in Canada? Have you considered money market funds?
These funds are a popular investment option for Canadians who want to earn a higher return than a savings account but don’t want to take on the stock market risk.
Money market funds are mutual funds that invest in short-term, low-risk securities such as government bonds, certificates of deposit, and commercial paper.
Professional portfolio managers manage them and offer liquidity, diversification, and stability. In this article, we’ll look at money market funds in Canada and help you understand how they work and whether they’re right for you.
What are money market funds?
Money market funds are mutual funds that invest in various types of vehicles; short-term, low-risk debt securities such as Treasury bills, commercial paper, certificates of deposit, and other highly liquid and low-risk investments.
These funds are designed to provide investors with a low-risk and relatively stable return on investment while maintaining high liquidity.
Money market funds are typically managed to maintain a stable net asset value (NAV) of $1 per share, meaning the fund’s share price should not fluctuate significantly.
This stability is achieved by investing in high-quality, short-term debt securities with low default risk.
Investors in money market funds can typically access their money quickly and easily, with most funds allowing for daily purchases and redemptions.
Money market funds are often used as a short-term cash management tool for investors who want to earn a slightly higher return than they would from a traditional savings account while maintaining high liquidity and safety for their funds.
The best money market funds in Canada
There are several significant money market funds in Canada, some of which include:
RBC Canadian Money Market Fund
This fund invests primarily in high-quality Canadian money market securities and aims to provide investors with a stable return while preserving capital and maintaining liquidity.
BMO Prime Money Market Fund
This fund invests in high-quality short-term debt securities Canadian corporations and governments issued. It aims to provide investors with current income while preserving capital and maintaining liquidity.
TD Canadian Money Market Fund
This fund invests in a diversified portfolio of Canadian money market securities, including government treasury bills, bankers’ acceptances, and commercial paper. It aims to provide investors with high liquidity and a competitive yield.
Scotia Canadian Money Market Fund
This fund invests primarily in Canadian government treasury bills, bankers’ acceptances, and other short-term money market instruments. It aims to provide investors with current income and capital preservation.
CIBC Money Market Fund
This fund invests in short-term Canadian debt securities issued by corporations and governments. It aims to give investors a competitive yield while preserving capital and maintaining liquidity.
These are just a few examples of significant money market funds in Canada. You might also want to look at Top Canadian Monthly Income Funds.
How to invest in money market funds
Investing in money market funds in Canada is relatively simple and can be done through various channels. Here are some ways to invest in money market funds in Canada:
- Through a brokerage account: Investors can buy and sell money market funds through a brokerage account, such as a discount or full-service brokerage. Investors can access various money market funds through a brokerage account and benefit from a financial advisor’s expertise.
- Through a mutual fund dealer: Investors can purchase money market funds through a mutual fund dealer, typically available through banks or other financial institutions. In addition, mutual fund dealers can provide investors with advice and guidance on which money market funds to invest in.
- Through an online investment platform: Several online investment platforms, such as Wealthsimple or Questrade, allow investors to purchase money market funds directly online. These platforms typically offer lower fees and can be more convenient for investors who prefer to manage their investments.
Can I buy US money market funds in Canada?
Yes, it is possible to buy US money market funds in Canada. Many Canadian financial institutions and online brokers offer access to US money market funds, which can expose Canadian investors to the US money market and potentially higher yields.
However, investors should be aware that investing in US money market funds can involve additional risks, such as currency exchange rate risk and regulatory differences between Canada and the US. Additionally, US money market funds may be subject to different tax rules and reporting requirements than Canadian money market funds.
Should You Use Money Market Funds?
Money market funds can be a valuable tool for investors looking for a low-risk, short-term investment option with a stable return and high liquidity. Money market funds aren’t the best investment for your TFSA but are usually better than basic savings.
Money market funds can provide investors with a way to earn slightly higher returns than a traditional savings account while maintaining a high level of safety for their funds.
However, investors should be aware of the potential risks associated with money market funds, including interest rate risk, credit risk, and liquidity risk.
It is vital for investors to carefully consider their investment objectives, risk tolerance, and time horizon before investing in money market funds and to consult with a financial advisor to determine whether they are a suitable investment option for their portfolio.