What is the difference between a money market account and a mutual fund?

Are there minimum beginning amounts on either? Peanalties for early withdrawal?
What is the difference between a money market account and a mutual fund?
There are money market mutual funds, however, this is what I think you're talking about.





Money Market accounts: most banks and brokerages offer these. They are essentially savings accounts tied to the market rate, so you get some higher return than a normal fixed savings account rate. You can usually write 3 checks a month, without penalty and withdraw up to 6 times a month. Typically, you must invest anywhere from $5000-25000 to start and hold a minimum balance.





Mutual Funds: These are a collection of stocks held together and invested in with the pooled funds of investors in the fund. You generally spread the risk amongst many investors and many funds. The funds can be tied to indexes, S%26amp;P 500 Index, Overseas Index, socially conscious "Green Funds", types of companies, Small, Mid-Cap, Large-Cap funds, and even bonds.


You can get started with $50/mo., or flat entries of $250 typically.





Hope that helps!
Reply:A mutual fund is a way of investing broadly in the stock market, with the intention of lowering the risk of short-term loss by spreading out the stocks in which the fund invests. To create a mutual fund, a financial institution buys shares of dozens, sometimes hundreds, of companies, and then pools all the earnings (and yes, losses) of those companies into the mutual fund.





The idea is that by choosing a diverse group of strong companies, the fund will offer less risk than simply buying shares in a few individual companies. It's a lot like one of those wildlife documentaries where the lions eat one or two zebra but the whole herd gets away. The mutual fund works on a similar principle -- if the fund contains, say, 30 different stocks, on any given day five or ten might drop, another ten might stay about the same, and another ten might go up.





Mutual funds are therefore an investment in the stock market, with the associated risks but also rewards. The challenge with a mutual fund is in finding one with a good, smart fund manager who chooses stocks wisely and keeps on top of changes and trends in the market that apply to the individual shares that make up the mutual fund. So one of the ways of analyzing a mutual fund's strengths is to look at how long the manager has been in charge; if he or she has years of success, this should give you some confidence that the fund will continue to grow.





A money-market account, on the other hand, trades in short-term securities like US Treasury bills and certificates of deposit, in an effort to find the highest short-term return on an investment. A money-market account is typically very liquid -- that is, you can contribute and withdraw fairly easily, depending on the terms of your financial institution. Money-market accounts always keep their share value at $1, and pay their returns by increasing the number of shares you have -- distinct from the mutual fund, in which the shares go up or down in value depending on the average of all the shares that make up the mutual fund.





One key distinction: mutual funds can (and often do) lose money some days while making money others, because they are made up of companies trading on the stock market. If you hate to see your balance drop, even by a small amount, a mutual fund may be a frightening investment if you look too closely at it. However, a good fund should provide steady growth over the long term; it's a typical place to invest 401(k) or IRA money, for example.





And just to make matters more confusing... there IS a special type of mutual fund that trades only in money markets. However, this is usually called a "money market fund;" it uses the principle of the mutual fund to spread the risk, while using the practice of the money-market account to focus on short-term, low-risk investments.





Minimum amounts and penalties will vary from institution to institution, so ask before you buy either. However, mutual funds do charge a maintenance fee (the fund manager has to make payments on his Carrera Cabriolet, you know :-), and the size of these fees can have an impact on your overall return and profitability.





To offset this, though, many mutual funds also pay dividends -- that is, in addition to the appreciation you may receive when the fund grows in value over time, you may also be paid dividends when the companies owned by the fund pay them. Most mutual funds (that I know of, at least) automatically pay those dividends by reinvesting them in your mutual fund rather than by writing you a check. So in essence if you own 100 shares of Fidelity Equity Income Fund (symbol: FEQIX) and it goes up (it went up 29 cents a share yesterday to close at 59.33), you still own 100 shares. But if FEQIX pays a dividend of 59.33 cents a share (to make the math easy), you will own 101 shares of FEQIX (100 times 59 cents equals 59 dollars) when the dividend is reinvested.





Last... the Morningstar group (http://www.morningstar.com/) evaluates mutual funds and rates them based on their performance and other characteristics over time. That's a good place to get some unbiased info on specific mutual funds.
Reply:To the best of my knowledge, a money market account is about the same as a saving account with different policies. As to minimum amounts, it varies with the institution your are dealing with. I don't think most have penalties for withdrawals except they may charge you a fee if you make more withdrawals per month, quarter etc. than their plan allows.





Mutual funds are like stock accounts that you buy shares in. You then become and owner in that fund.





Hope this helps a little
Reply:A money market is a type of bank account. The funds in a money market can be used to purchase mutual funds, which are types of investment.