Money fund

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Money funds (or money market funds, money market mutual funds) are mutual funds that invest in short-term debt instruments.

1 Explanation
2 Money market accounts
3 History
4 Institutional money fund
5 Retail money funds
6 See also
7 External links

[edit] Explanation

Money market mutual funds are restricted by quality, maturity and diversity guidelines. They must buy only the highest rated debt which matures in under 13 months, and the entire portfolio must have a weighted average maturity of 90 days or less. Money funds are only allowed to invest up to 5% in any one issuer, with the exception of government securities. No individual investor has lost money in a money fund, which keep a stable $1.00 NAV (net asset value). But it is possible for these funds to "break the buck" (decline to $0.99 or less).

[edit] Money market accounts

Banks in the United States offer savings and "money market deposit accounts", but these shouldn't be confused with money market mutual funds. These bank accounts offer higher yields than traditional passbook savings account, but often with higher minimum balance requirement and limited transactions. A money market account may refer to a money market mutual fund, a bank money market deposit account (MMDA) or a brokerage sweep free credit balance.

[edit] History

The first U.S. money fund - The Reserve Fund - was established in October 1971, enabling the small investor to invest in these instruments. Today, almost 2,000 money funds are in operation, with total assets of over $2.3 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 high minimum, low expense share classes which are marketed to corporations, governments, or fiduciaries. They are often 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 is the JPMorgan Prime Money Market Fund, with almost $100 billion in assets as of Dec. 31, 2006. Among the largest companies offering institutional money funds are BlackRock, Federated, Columbia (Bank of America), Dreyfus, AIM and Evergreen (Wachovia).

[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 40% of all money market fund assets.

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. Money funds for individuals are currently yielding just under 5.0%. However, instruments of the United States Government are usually exempt from state income taxes.

The largest money market mutual fund is Fidelity Investments' Cash Reserves (FDRXX), with assets exceeding $88 billion. The largest retail money fund providers include: Fidelity, Vanguard, and Schwab.