Money Market Funds

Understanding money market mutual funds and whether they fit your portfolio

Money market funds are low risk mutual funds that pay returns on shares reflecting short term interest rates. Money market funds invest in government securities and are a great way to diversify your portfolio. These types of funds are also good for new investors still unsure of the business of investing.

The mandatory management of your assets in a money market fund can be both a positive and a negative trait, however. While mandatory management provides professional management for funds, it also leaves the investor without control. This can be a frustrating aspect of money market investment. Before choosing a government money market fund, consider the following:

1. How much of your savings are you are willing to invest into a prime money market fund?

2. Research a money market directory for assistance in choosing the right institution to invest with.

3. Ask about the a money market fund's recent ranking ask prior to making your decision.

Start your portfolio with money market mutual funds

If you are a first time investor, a money market mutual fund is a safe bet. Money market funds also offer good returns. In addition, small contributions by cautious investors are always welcome. Once you get your feet wet, you may consider increasing your contributions.

Consider tax-free money market funds

There are some types of federally tax-exempt money market mutual funds that invest in short term debt obligations. These offer a lower yield; however, their tax-exempt status compensates. These are worth investing in, but be cautious and confirm your tax obligation before making on decision on which money market fund to go with.

Review fees before choosing among top money market funds

Though money market fund rates should be an important part of your decision, remember that different mutual funds have various fees associated with them. Always check to see if initial sales fees, management fees or transaction fees are involved. It's not unusual to compare fees between money market mutual funds to better understand what is expected and what is above and beyond the norm.
U.S. Securities and Exchange Committee offers a list of fees to watch out for in their introduction to mutual funds. Bankrate.com tracks money market fees and rates.
  • Before choosing a money market fund account, always review all information associated to that particular fund, including: the money market fund rates, that money market funds ranking, its prospectus and the most recent shareholder report.