Money Market Mutual Funds

Tips For Getting The Best Money Market Mutual Fund

Written by William James

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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