A money market fund is a type of mutual fund that is required by the government to invest in only low-risk investment vehicles.Money market funds are considered to be one of the safest investment forms because of their low-risk strategy.Their low-risk status is reflected in their relatively low rate of return.Money market funds are offered by a number of investment firms.You can follow these steps to find the right money market fund.
Step 1: Decide if money market funds are right for you.
You have to make sure that investing in a money market mutual fund is the right move for you.Money market funds are similar to savings accounts at a basic level.They are low-risk accounts that have a steady interest rate and can be withdrawn from.It's not as simple as visiting your bank and asking for a withdrawal.MMFs are a bad choice if you need the money quickly because you'll have to either write a large check or electronically transfer the funds out.MMFs are not insured by the Federal Deposit Insurance Corporation.If the investment firm that provides your MMF fails, the government won't cover your funds.There is little risk of losing money this way.The minimum investment for most MMFs is $2,500.
Step 2: The fund could be used to manage cash.
If you have money with an investment firm, you could use an MMF to manage it.If this is the case, the firm will often recommend putting money in a money market account as an alternative to a savings account.
Step 3: You can replace a savings account.
If you need a safe, easy-to-access investment to put your money into while you make a more long-term investment decision or save for a large purchase, money market funds are a good choice.The money market is a savings account with a higher yield.It is easy to transfer money when you are ready to invest.If you don't need to take money out before you close the account, you should use a MMF.There may be large fees for writing checks or withdrawing money from the account.
Step 4: Transfer money from one investment to another.
If you want to sell a higher-yield investment fund in order to cash in on its maturity before deciding on which fund to buy, you can use a money market fund.It's a good idea to put the money in a money market fund held by the company you plan on investing with, as you can easily transfer the funds into a new fund once you make a decision.
Step 5: Know where to find money market funds.
Money market funds can be found through investment management companies.Visit the websites of these companies to learn more about their money market fund offerings.It is a good idea to check with your broker to see what money market funds are available.Money market funds that offer different levels of risk and returns will be offered by each company.
Step 6: Consider US Treasuries securities funds.
Money market funds that only invest in U.S. treasuries securities are considered the safest type of funds.The lowest returns are also yielded by them.
Step 7: Government sponsored enterprises (GSEs) funds can be investigated.
Government entities like Fannie Mae and Freddie Mac are the primary investment for these money market funds, which yield a higher return than T-bills, but are slightly riskier.These funds aren't tax-free on state income tax.
Step 8: Different money market securities funds can be analyzed.
Most of the MMF invests in short-term corporate securities.These give the highest returns.They have the highest amount of risk and are not exempt from taxation.
Step 9: Obtain fund information.
You can request fund documents and information from the investment company.The prospectus outlines how the fund is organized and where the money is invested.Monthly and annual reports show the performance of the fund.Key Investor Information Documents (KIIDs) can provide you with more fund structure and performance information.Information about popular MMFs can be found at sites like MarketWatch and Yahoo!.Finance is related to finance.
Step 10: Funds with non tax-exempt status can be compared.
Taxable funds invest in Treasury bills and commercial papers.State and local government securities are not subject to federal taxation.You can find MMFs that are tax free on both the state and federal level.State-specific funds are offered by many investment companies.Tax-free MMFs may have lower yields than their taxable counterparts.Many cases the after-tax yield is higher.This is true for investors in higher tax brackets.People in the 28 percent tax brackets should invest in tax-free MMFs.They will not be able to offer positive after-tax returns if their funds are taxed too heavily.
Step 11: Evaluate expenses.
Before committing to a money market fund, take all expenses into account.It is more important to avoid paying fees because of the low returns earned by MMFs.Some funds charge an annual fee and/or withdrawal fees.Redemption fees can eat into your yield but are capped at 2 percent of your investment value.The prospectus presented may be out of date and the fees are liable to change daily.Average fees are calculated as a percentage of the investment in a prospectus.When choosing a MMF, look for the lowest expense ratio.If the fees charged create a negative return for investors, some funds will waive them.
Step 12: Look for a good yield.
Money market funds pay out more if the yield is higher than the interest rate is.Consider a fund's current yield and yield history when making a decision.To find out how much you can make on the investment, compare the yield to the expense ratio.
Step 13: Money market fund holdings have credit ratings.
The risk of a money market fund depends on the underlying securities it is invested in.You should always look at the fund's prospectus to figure out where your money is going.The safest MMFs are invested in Treasury securities.These funds are cheap because they don't require much research on the part of the fund managers.Some MMFs may invest in short-term municipal or corporate securities.The credit risk of the MMF is assessed by looking at the credit ratings of individual securities.