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What Is a Federated Money Market?

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  • Written By: Helen Akers
  • Edited By: Jessica Seminara
  • Last Modified Date: 12 November 2019
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A federated money market takes a more conservative approach to its money market funds. It seeks to create the most stable investment option available by investing in funds that are government secured or of the highest credit rating. The net asset value of a federated money market usually stays at $1 US Dollar (USD).

Money market funds are usually stable investments that seek a modest return. Their risk level is considered to be close to that of a regular bank savings account. A federated money market seeks to increase that level of stability even more by only investing in companies and mutual funds that pass strict ratings.

The risk of a federated money market is diffused by investing in more than one investment source. Rather than investing all of the funds in one investment security or provider, the funds are split between at least two. This helps to minimize overall risk in the event that one security or fund experiences a bout of poor performance. Typically at least one fund's higher performance will make up for what may be lacking in the other.

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Ratings for investment securities are obtained from national organizations that specialize in this, and the investment sources must be rated at or near the top. For instance, bonds are typically given letter grades. An "A" rated bond is usually considered to be one of the top ratings, indicating a minimal rate of risk and payment default. Internal ratings are also compiled on all investment funds.

Those funds that are considered to be a part of a federated money market are usually in the top 2 percent of available money market investments. They accomplish this by mainly investing in highly rated securities that are government secured. These types of money market funds also tend to stick to well-known, established, large corporations. Unlike high risk investments, they don't dabble in foreign or emerging markets.

Government secured funds tend to come with a high rating since they are guaranteed, even if default occurs. Similar to the idea of the United States' federal deposit insurance, the investor is guaranteed to have access to his funds even if the institution that holds them fails. An investor may not obtain as much return from a stable money market fund as he would with higher risk funds, however, he is typically protected against a loss in the overall investment value.

The value of a federated money market fund is usually kept equivalent to the amount of money that is invested. In other words, if $1 USD is invested, the fund works to maintain the full value of that dollar. While this is not completely guaranteed, there has been no history of a federated money market ever falling below that value.

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