What is a Money Market Mutual Fund?

A money market mutual fund, also sometimes just referred to as a money market fund, is a type of mutual fund that is considered to be open ended and invests in commercial paper, and short term securities debt such as treasury bills. These types of mutual funds are regulated in the United States by the Securities and Exchange Commission (SEC)’s Investment Company Act of 1940, and have become quite important to financial intermediaries as a form of liquidity.

Money market mutual funds are desirable to investors because they tend to be more stable, and tend to limit the overall exposure to risk. This is due to the fact that losses are limited because of general market, liquidity, and credit risks. In general, money market funds usually buy debt that has a high rating and is scheduled to mature in about a year or less. Under the regulations put in place by the SEC, the fund’s portfolio must have a weighted average maturity (WAM) of sixty days or less, and no more than five percent should be invested with any one entity, expect in the case of repurchase agreements and government securities.

Unlike other types of mutual funds, investments, and financial products, money market mutual funds strive to maintain stability. These funds are usually able to pay investors a dividend as well.

Some brokers routinely use money market mutual funds as a means to provide clients with cash management services. By placing the client’s unused cash into a money market fund, the client will be able to earn better returns (even if just a percent or two), on top of the returns already earned with other investments.

Money market mutual funds also offer a handy place for putting cash when an investor is not entirely ready to invest fully or when they may want their cash ready for another purpose in a short period of time. These funds offer a good amount of liquidity and safety, allowing investors to have access to their money when they need it.

This type of mutual fund is also ideal for the unique needs of smaller investors, as general investments range from about five hundred dollars to about five thousand dollars.

Money market mutual funds can be purchased directly from the mutual fund companies, or they can be purchased through a brokerage house. Some banks may also offer investment services in which you can purchase money market mutual funds, along with various other types of mutual fund investment options.

Tags: brokerage, commercial paper, money market, SEC, securities, stable, WAM