Basic Information About Money Market Mutual Funds

Posted on May 29, 2010 by admin

Mutual funds of any type do not offer a fixed-rate of return on your investment. Mutual funds, including money market mutual fund prices can go up and down every day and depending on where you buy in and where you sell your return on investment will fluctuate. Even if the money market mutual funds are sold by a bank, these funds are not insured by the FDIC like CD’s or savings accounts.

Understand What You Are Buying

A money market mutual fund may look like a savings account. They often come with check books or ATM cards for easy access and you may be purchasing your account from a bank. But this is not a savings account or a CD or a money market account. This is a mutual fund. The product is not insured, you don’t get a guaranteed rate of return, nor is your principle secure.

It is important to understand this because some banks will lump these funds in with other “savings” options on a marketing brochure and not spell out the differences. Make sure if you are looking at “money market” options that you know if you are looking at an interest bearing, insured, money market account…or if you are looking at a money market mutual fund account which may pay a higher rate of return, but also has more risk associated with it.

Don’t Choose the First Money Market Mutual Fund You Find

Do your comparison shopping on mutual funds. Read the prospectus and ask lots of questions for those you are interested in. There are literally close to a thousand different money market mutual funds available.

These funds are all run by different companies and all have different goals and risk thresholds. They all have different fees and histories. Narrow the field down by asking questions and checking out any comments about the fund from different sources. It is important to read the prospectus of the fund and to ask for a Statement of Additional Information from the company.

If you don’t understand specific terms or any abbreviations in the information provided, make sure you get everything explained. If the investment company doesn’t seem willing to explain the information or make you feel comfortable with their answers then they probably aren’t the place you want to invest your money.

Money Market Mutual Fund Fees

With so many different options and different places to invest your money in money market mutual funds, you will find that the fees and the way fees are charged—vary greatly.

Make sure you understand what all the charges and fees are that apply to the mutual fund you choose. This will mean that you need to understand the terminology that goes with those fees. Here is a sample of the fees or charges that might apply to your money market mutual fund:

  1. Front-end loads – This is usually a percentage fee that is charged at the “front-end” or when you purchase the fund.
  2. Back-end loads – This percentage fee is charged at the “back-end” or when you sell or cash out your money market mutual fund.
  3. No-load funds – These are mutual funds that don’t charge the Front or Back –end load fees when you buy or sell a mutual fund. But they often charge a set management fee so make sure ALL the fees are spelled out in advance.
  4. Breakpoint Selling – There are many mutual funds who will reduce the load percentages or the sales charge after you invest a specific dollar amount. For instance you pay the fees if you invest $3000, but don’t pay the fees if you invest $5,000. $5000 is the breakpoint. This is just an example. Make sure you understand what the breakpoint is for any money market mutual funds that you are considering. This information is generally listed in the fund’s prospectus under Sales Charge.

Money Market Mutual Fund Summary

There are other types of mutual funds. Some mutual funds invest in stocks or bonds, not money markets. If you compare money market mutual funds to these other types of mutual funds you will find that the money market funds are comparatively low risk.

Ordered by federal regulation to only invest in high quality, short-term investments, the money market fund is less likely to crash with the stock market. You earn your money because the money market fund earns a fluctuating interest rate on the money deposited. This money is based on how well the fund is run and the types of securities they’ve purchased.

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Tips For Getting The Best Money Market Mutual Fund

Posted on May 27, 2010 by admin

These money market mutual fund investments are usually made in things like government securities or T-bills, CD’s or certificates of deposit, and commercial paper. An example of commercial paper can be a very short-term promissory note.

One of the most important benefits to a Money Market Mutual Fund is that it is diversified. This means that they are made up of many different investments. Having different investments can lower your risk factor because you avoid having all your money tied up in one place.

With money market mutual funds there are lots of options to choose from. There are tax or tax-free, fee or no fee, minimum or no minimum funds. With so many choices it is important to ask all the questions and understand the differences between the funds before choosing the one that’s right for you.

Tip One

The first tip is to check the history. While past performance doesn’t mean any guarantee of what the fund will do in the future, it can provide a baseline for questions. How long has the fund been operating? What have the fees or loads been? What has been the historic return on investment? Compare fund histories for the accounts you are interested in.

Tip Two

Request a copy of the fund’s prospectus and read it. The prospectus will give you more information on the strategies used to invest. It will give you an idea of the performance objectives, risks and expenses associated with the money market mutual fund. Compare the funds objectives and see if it meets your own risk tolerance and goals.

Tip Three

Check the fees. Compare any sales charges or transaction fees. Some have load or fees that are charged when you deposit money, some when you take it out and some don’t have any fees. Some fees aren’t reflected in the performance ratio so make sure and check all the fees and factor this into the final return on investment. This includes fee waivers. Some companies will waive fees for the first year or a specified period of time. Make sure you understand all the charges.

Tip Four

Are the funds registered for your state? Not all funds are available in all states. Make sure when you are looking into the funds that one you are interested is actually available to you.
Tip Five
Are you looking for tax-exempt funds? Money market mutual funds can invest in municipal and state bonds and offer tax-exempt returns on investment. Understand if the funds that you are looking into are tax-exempt or not.

Tip Six

Do you want easy access to your money? If you do, many money market mutual fund accounts will offer an ATM card or checks on the account. Some will allow for instant online shifting of withdrawals to your checking account. Don’t forget to compare withdrawal options when you are looking into the different accounts.

Tip Seven

Understand that investing in a money market mutual fund is not a savings account. These types of funds are not guaranteed by the FDIC or anyone. There are risks to assess and it is just like any investment, you might lose your money instead of making a return on the investment.

Summary

A Money Market Mutual Fund is basically an investment account that is managed by a professional investment manager. These accounts don’t have a specific interest rate for return on investment like is done with a regular savings account or a money market account at a bank or credit union.

The money market mutual fund or money fund can be defined as a collection of short-term debt investments that are held by that mutual fund. These money market investments are debt securities that will mature within thirteen months or less. A debt security is a bank note, or bond or other type of document that is written to specify a debt.

The money earned on the account or the interest rate will fluctuate according to the profits generated on those debt securities. The professional investment manager buys and sells securities for the most effective growth of the fund.

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Questions and Answers about Money Market Mutual Funds

Posted on May 27, 2010 by admin

Are Money Market Mutual Funds safe?

In 2008 there were more than 800 different money market funds in the United States. These 800 different funds accounted for about 10 percent of all US mutual funds. The Securities and Exchange Commission has specific guidelines on the type of investments that can be included in a money market mutual fund. These guidelines monitor things like company credit quality, liquidity and diversification.

There are federal securities laws that monitor many different aspects of a money market mutual fund. The FCC even provides limits on what kind of investments a money market fund can make. There are still risks and investors have lost money on these funds, but the risks are generally a lot lower than playing in the stock market.

What type of investors use Money Market Mutual Fund Accounts?

One of the main benefits to utilizing a money market mutual fund is liquidity. This means the money you have in the account can be assessed easily. You can take it out without penalty and add more to many of the accounts without paying commissions or fees. Many investors will use the money market mutual fund accounts as a holding account for other investments they’ve sold and plan to invest somewhere else.

Often these money market mutual fund accounts are used for those investors who want to preserve their money, yet still get a better return on investment than a savings account or CD. Yet often the money market mutual fund account offers either an ATM card or checks for easy withdrawal.

Is the money in a Money Market Mutual Fund insured?

The answer to this is no. Money market mutual funds are not insured like a bank savings account or bank money market deposit account. Neither the Federal Deposit Insurance Corporation nor the National Credit Union Administration insures the money deposited in a money market mutual fund account.

Why should I consider a money market mutual fund versus putting my money in a savings account?

For one thing…the amount of return on the money you put in a money market mutual fund is often double or more what savings account interest would be. Many savings accounts today have a 1-3% interest, while money market mutual funds often annualize at 15% or higher. Depending on your tax bracket, there are tax-exempt funds that put their investment dollars into municipal and state government bonds and securities.

A money market mutual fund generally will allow you to take money out at anytime via a check or ATM card. You are not penalized for withdrawing money as you might be if you took money out of a CD account early.

Is there a minimum amount that I must deposit to open a money market mutual fund?

The answer to this is it varies. Some accounts require a minimum deposit and some require a minimum balance. But this is account specific. It could be as little as nothing, $500, or more than $2500. Make sure that you understand the account requirements and use these guidelines to compare services.

Money market mutual funds can generally be bought and sold at anytime. You are not required to hold on to them for any specific period of time like a certificate of deposit.

What else should I look out for if I want to buy into a money market fund?

This isn’t a savings account, it is an investment. There are some risks and fees that are associated with this type of an account that you may not be aware of. Make sure you check out the Investment Company or money market mutual fund account and find out how long it has been operating, who manages the fund, and what fees and regulations are applicable.

As discussed above, find out if there is a minimum deposit or balance. Then find out if you are restricted to a specific number of withdrawals per month. Ask about the fees associated with the account and if you have to pay them based on the money you put in or the money you take out?

Do your research, ask questions and read the fine print. The flexibility, return on investment and overall stability of money market mutual funds may be worth the time it takes to research the options.

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