How can individual investors invested in Money Market Instruments?
Most money market instruments have very high face values and are probably not of much interest to the individual investor. However, small investors can invest in money market funds which invest in these instruments. This is a good option as long as such funds don’t charge heavy entry/exit loads and administrative fees. Investors can invest in Certificates of Deposits and Time Deposits through any commercial bank. Advantages Cash equivalents are highly liquid and hence can be used in case of emergencies. Since most cash equivalents tend to be of very high credit quality, they are generally very safe. Disadvantages The returns from cash equivalents tend to be very low, usually less than 2% p.a. in most developed economies. Though most money market instruments are of very high credit quality, they are not 100% risk free. Investors, especially those who invest in discount securities face interest rate risk.
