Money Mutual Funds: Finance Trading Times

Money Mutual Funds

As far as the general perception goes, the Mutual funds are assumed to contain relatively less risk as an investment options when they are compared to shares. The reason given as Individual shares may see sharp moves in prices over a small period of time. The same is the case with money market instruments like T-Bills or treasury bills and CD or certificates of deposits. In this article, we will given an introduction to Money Mutual Funds, an introduction to Money Mutual Funds, an example of Money Mutual Funds, How to invest in Money Mutual Funds and the risks factors of Money Mutual Funds.:
Money Mutual Funds
The T-bills and CDs give a confirmed and fixed rate of return at a regular time interval, but the problem with T-Bills and CDs is that they require big amount of investments, hence individual investors who wish to get returns on small amount of principle capital, may not be able to afford investing in these T-Bills and Securities.
That’s where the money market mutual funds come into picture which invests in debt instruments of short term with the sole objective of earning interest for their shareholders are called as money market mutual funds. Since they act as mutual funds, they manage to get collect small amounts of money from thousands or millions of investors and then used this accumulated pooled money to invest in short term debt instruments like T-Bills or CD.

These money mutual funds or money market mutual funds are offered to investors as “no load mutual fund” option.
In terms of categorization based upon the investors, there are two types of money market mutual funds.

• for institutional investors – who invest big amount of money, usually by governments, institutional investors and big business houses. As per the available information, the biggest investment in money mutual funds has been from AIM which invested 31 billion USD in T-Bills.

• for retail investors – who invest small amount of money. They constitute nearly half the market size and are driven by retail investors which may be through stock brokers. There primary investments are in short term T-Bills, tax free funds, government funds as well as private mutual funds. The advantages with retail money market funds are you can withdraw money even in smaller denominations like $ 500 by drawing a check like you do with your bank account. You also have the option of a very simplified redemption to exercise.

What Is the advantage of Money Mutual Funds or Money Market Funds?
If one looks at the tremendous volume of money market investments, it will indicate the popularity and reasons why people like to go with this investment.
• Risk Free Investment- Money market funds are considered to be relatively safe because they invest the money in government backed T-Bills and similar instruments.
• Investments in Smaller Amounts: One can invest as little as $500 in a money market mutual fund, while a direct investment in money market instruments may require a minimum of $5,000.
• Fixed Returns and Timely Payout – While stock and stock mutual fund transactions may require as many as 3 days for settlement, the money funds offer immediate settlement like the normal instruments of money market Hence, investors have the money available for immediate disposal.
• Wide variety from various firms: Almost all the good performing money mutual funds have similar investment criteria, good ethical practices and professional behaviour. This allows for investor confidence and loyalty.

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Related: Tax Free Municipal Bonds

Here are some investment tips for investing in money mutual funds:
• Look at the Ratings: All Money market funds are assigned ratings by firms like Moody’s, S&P (Standard & Poor). Instead of going blindly for investment, it is always advisable to check for the fund ratings. (Best rating is 'A1' by S&P and 'P1' by Moody's).
• Look at the underlying instruments: Since your money is managed by mutual fund managers, they have the sole discretion of investing your money into the investment of their choice. It is always advisable to look for what these fund managers are buying, and look at the ratings of the underlying instruments.
• Purchase and Exit Conditions: usually, all the money market mutual funds have NAVs fixed at $ 1.00. Also look for minimum investment required and exit conditions to avoid surprises at the last moment.
• Cost/ Expense Ratio of Investment in Money Mutual Funds: Generally, the money mutual funds are sold at no load. Some funds may charge money for exit load or entry load. Be careful about such charges as a high return money mutual fund may look good in terms of returns but it may be nullified by high expense ratio.
• Tax Benefit: usually, the tax free money funds will have low returns, but if you make the overall calculation taking into consideration the amount of tax savings, then you may find that the low return tax saving money market fund is a better choice. That also minimizes your cost. Hence it is advisable to do all your calculation and select the appropriate money mutual fund (Low return tax saving money mutual fund or high return taxable money mutual fund).
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1 Comment: Post your Comments

Anonymous said...(on 25 July 2008 at 18:19 )  

Many banks set their minimum at $500 to $1000. Some even less. Savings rates are currently between 3.50% to 4.00%. There are probably some even higher. CD rates range from around 4.00% to over 5.00%. They really can fit investors with smaller amounts of cash as well.

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