Money market mutual funds represent a multibillion-dollar investment segment. They are a primary source of liquidity for corporations, pension funds and individuals. Money market funds are liquid and safe, which adds to their appeal. However, there are many variations that can prove difficult to understand without research.
Background
Money market funds are regulated under the Investment Company Act of the 1940th Money market funds managed by investment funds, which charge an administration fee to set up and operate a portfolio of securities, like any other fund. However, money market funds specifically cash, and buy only short-term safe securities. These range from commercial papers, treasury and agency debt and repurchase agreements. They are bound to be relatively short duration to provide daily liquidity.
Types
There are five types of money market funds to consider:
1. Prime. Prime investment in corporate commercial paper, repurchase agreements, treasury or other short-term, fixed-income types of investments.
2. Government. State investments only in Treasuries or government agency securities (Government National Mortgage Association, for example) and repurchase agreements.
3. Treasury. Money Boxes come in two types - those investing 100 percent in U.S. Treasury and those who invest in U.S. Treasury and repurchase agreements.
4. Tax-free. Tax-free investing in municipal securities or other instruments that are not taxed. Be aware that some of these funds avoid securities subject to the Alternative Minimum Tax (AMT), and some do not.
5. Offshore. These funds are typically denominated in U.S. dollars, but investing in short-term, fixed-income investments abroad.
Comparison
Mutual funds are baskets of stocks or bonds that have different prices each day. A Net Asset Value (NAV) is the total price of the fund, calculated at market close each day to reflect changes in the underlying holdings of the fund. Although money market funds, by definition, to keep a constant NAV of $ 1, dividends or interest paid by the Fund varies widely by market segment as well as the fund company. Prime funds will almost always give the highest yield, but also carry more risk simply because they invest in private companies may go bankrupt. The second highest yield comes from state funds because the government agency debt entails higher risks than the federal government. Last is the Treasury, the State debt is guaranteed by the federal government.
Select the type of fund is the most important decision. Secondary is the particular fund company. There are differences in yield, because managers can get lucky, or have better information. Sticking with familiar names such as Fidelity, Vanguard, Goldman Sachs and the like, are generally the least risky way to invest in money market funds.
Rates
Since money market funds invest in short-term liquid investments that change the content on a daily basis, the funds' yield changes on a daily basis. MMFs are not investments where you invest money and forget about it, you need to monitor rates closely to capture extra yield by moving funds (assuming transaction costs to do so is not prohibitive). The best price offered to institutional investors with large sums to invest. Today, these funds provide about 45 basis points, but most people can investors hope to get 20 to 30 or less. faithfulness, the largest fund company in the U.S., offers Fidelity Institutional Money Market by 48 basis points in yield from 11 September 2009, and a Fidelity Cash Reserves fund of 30 basis points. This is not to be confused with Money Market accounts in a bank which pays a higher rate (in days) in order to attract sufficient funds, but when interest rates rise over time, the money market accounts do not go up much, while money market funds will move in lock step.
Considerations
Money market funds and money market securities accounts play an important role in managing finances and providing liquidity to investment markets. Money market funds are ultra-safe, highly liquid vehicle for cash to move around in the economy, and money market accounts are an important tool to channel money into those investments.
Look closely at the instruments in which a money market fund investing, these are typically placed on the website of the Fund. Also, no detailed examination fees. Pay for a better preparation of investment is only interesting if the yield is greater than the fee. Finally, if you invest in a money market account, and only one money market fund offered, ask if other options are available, especially if you have a high balance.
Best Money Market Rates
