Municipal bonds are federal, state or locally-issued bonds intended for funding capital expenses such as construction projects; and when a money market fund invests in municipal bonds, it becomes a municipal money market fund. The newly formed funds combine the best of both worlds. They join a bond’s tax benefits with a money market fund’s stability, liquidity and ability to diversify.

Businesses thinking of expanding their offerings with municipal money market fund management, those who want to include this sector in their portfolio or businesses wishing to create a municipal money market fund must become familiar with how the funds work.

1. Know that money market funds and municipal bonds serve different purposes.

2. Learn as much as you can from a municipal money market fund expert.

3. Research various options before selecting a municipal money market fund. You also may want to create a municipal money market fund for your specific business needs.

4. Be aware of the risks involved with investing in municipal money market funds.

Action Steps
The best contacts and resources to help you get it done

Become aware of the differences between a municipal money market fund and municipal bonds

Money market funds are mutual funds that are invested in certificates of deposit, government securities and corporation-issued commercial paper. They are usually lower-risk and easily liquidated. Municipal bonds are issued by government entities, such as school districts, city, town or state governments or publicly-owned airports, to raise capital. Proceeds from the sale of these bonds go for municipal improvements. Generally, municipal bonds are tax-exempt but not always.

I recommend: The Investment Company Institute answers frequently asked questions about money market funds and how to use them for investment purposes. fmsbonds features an overview of how municipal bonds work and explains the different types of bonds that are available, how to locate a municipal money market fund's listed price and how safe investing in municipal bonds really is.

Get municipal money market fund advice from the experts

Investment firms and brokers are just some of the experts who can help you find the best municipal money market funds for your business or personal needs.

I recommend: Morgan Stanley offers financial advice to businesses, governments and individual investors. Its website answers frequently asked questions about investing in municipal money market funds. Fidelity Investments is another resource that lists national and state municipal money market funds.

Understand there are risks associated with municipal money market funds

As with most investments, municipal money market funds are not without risk. These funds have variable interest rates, may fall victim to inflation and are subject to inconsistent share pricing.

I recommend: Investopedia.com offers insight into the pros and cons of investing in municipal money market funds and municipal bonds. Evergreen Investments provides municipal money market fund "facts" that include investment objectives and strategies, a typical investor profile and some investment tips.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Before choosing a particular fund, research whatever municipal money market fund information is available, including interest rates, the municipal fund's ranking, syllabus and its shareholders' report. Monitor the activity of municipal money market funds before investing.
• •  There may be monthly fees if minimum balances in a municipal money market fund. Additionally, there are monthly withdrawal limits imposed by federal regulations.