Money fund
From Wikipedia, the free encyclopedia
Money funds (or money market funds, money market mutual funds) are mutual funds that invest in short-term debt instruments.
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[edit] Explanation
[edit] Money market accounts
Banks in the United States formerly were allowed to offer money market mutual funds directly to their customers via the same channels as their other bank accounts. However, regulations changed and prohibited these funds being sold by anyone but specially licensed individuals. In addition, the banks were required to generally transfer all of their customers' money in these funds into bank accounts. These accounts were in most cases named "money market savings accounts", which is simply a marketing term for a high interest yielding savings account with a higher minimum balance requirement.
[edit] History
The first U.S. money fund - The Reserve Fund - was established in 1972, enabling the small investor to invest in these instruments. Today, more than 1300 money funds are in operation, with total assets of over $1 trillion dollars.
Outside of the U.S., at least one money market fund was established prior to the Reserve Fund. This was Conta Garantia set up in Brazil in 1968.
[edit] Institutional money fund
Institutional money funds are usually set up so that money is swept to them overnight from a company's main operating accounts. Large national chains often have many accounts with banks all across the country, but electronically pull a majority of funds on deposit with them to a concentrated money market fund.
The largest institutional money fund that invests in top-rated short-dated corporate debt as well as US Treasury securities is the AIM Money Market Fund, with more than $31 billion in assets as of Dec. 11, a record, according to the company. A number of funds that invest in corporate debt, T-bills, short Agency debt, and other short-term securities are larger, however. Goldman Sachs Financial Square Federal Fund, with more than $10 billion in assets as of Dec. 11, is the biggest institutional money fund that invests only in US Treasury securities and agency securities and repurchase agreements.
[edit] Retail money funds
Retail money funds are offered primarily to individuals with moderate-sized accounts. Their primary use is as temporary holding funds at stock brokerage firms. Retail money market funds hold roughly half of all money market fund assets. (Copyright infringement in these two sentences?)
Retail money funds invest in short-term debt, such as US Treasury bills and commercial paper, come in a few different breeds: government-only funds, non-government funds and tax-free funds. You will get a slightly higher yield in the non-government variety, which will invest in high-quality commercial paper and other instruments. For example, the seven-day average yield (no compounding) for non-government funds was 4.18% ending May 25 1999, compared with 4.09% for taxable government-only funds, according to Connie Bugbee, editor of IBC's Money Fund Report. However, instruments of the United States Governmnt are usually exempt from state income taxes.
One of the largest money market mutual funds is Fidelity Investments' Cash Reserves, with assets exceeding $71 billion.
