Money market fund

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Money market fund

A mutual fund that invests only in short term securities, such as bankers' acceptances, commercial paper, repurchase agreements and government bills. The net asset value per share is maintained at $1.00. Such funds are not federally insured, although the portfolio may consist of guaranteed securities and/or the fund may have private insurance protection.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Money Market Fund

A mutual fund that invests exclusively in short-term, low-risk securities. Examples of investments in money market funds are certificates of deposit and U.S. Treasury securities. Money market funds attempt to keep their net asset values at $1 per share, such that only the yield changes. Money market funds are usually not federally insured, but the risk is so low that they very rarely lose principal for the investor. However, yields are very low and thus money market funds are subject to inflation risk; that is, the yield on a fund may be less that the inflation rate, resulting in a loss. See also: Money market security, Money market note.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

money market fund

A mutual fund that sells shares of ownership and uses the proceeds to purchase short-term, high-quality securities such as Treasury bills, negotiable certificates of deposit, and commercial paper. Income earned by shareholders is received in the form of additional shares of stock in the fund (usually priced at $1 each). Although no fees are generally charged to purchase or redeem shares in a money market fund, an annual management charge is levied by the fund's advisers. This investment pays a return that varies with short-term interest rates. It is relatively liquid and safe but varies in yields and features. Both taxable and tax-exempt varieties of money market funds are offered. Also called liquid asset fund. See also average maturity.
Case Study Choosing between a taxable and tax-exempt money market fund is a function of an investor's marginal tax rate and the difference in yields between the two types of funds. A higher marginal tax rate makes it more likely an investor will earn a higher aftertax return from owning a tax-exempt fund as opposed to a taxable fund. Likewise, the smaller the difference in yields between the two funds, the more likely an investor will benefit from choosing a tax-exempt money market fund. In late November 2001 the largest taxable money market fund managed by Smith Barney paid an average seven-day annualized yield of 1.88%. At the same time the firm's main tax-exempt fund offered a yield of 1.36%. An investor in the 35% federal tax bracket who owned the taxable fund earned an aftertax return of 1.88 × (1 - .35), or 1.22%. This investor paid the Internal Revenue Service 35% of the 1.88 taxable yield, leaving a return of only 1.22% after taxes. Thus, an investor in the 35% tax bracket would have been better off owning the tax-exempt money market fund that paid an aftertax yield of 1.31%. On the other hand, an investor who faced a marginal tax rate of 27% earned an aftertax return of 1.88 × (1 - .27), or 1.37%, by owning the taxable money fund, somewhat better than the return provided by the firm's tax-exempt fund. The yield difference between taxable and tax-exempt funds is constantly changing, so it is important for an investor to remain alert and consider transferring money from one type of fund to the other as yields warrant.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Money market fund.

Money market mutual funds invest in stable, short-term debt securities, such as commercial paper, Treasury bills, and certificates of deposit (CDs), and other short-term instruments.

The fund's management tries to maintain the value of each share in the fund at $1.

Unlike bank money market accounts, money market mutual funds are not insured by the Federal Deposit Insurance Corporation (FDIC).

However, since they're considered securities at most brokerage firms, they may be insured by the Securities Investor Protection Corporation (SIPC) against the bankruptcy of the firm. In addition, some funds offer private insurance comparable to FDIC coverage.

Tax-free money market funds invest in short-term municipal bonds and other tax-exempt short-term debt. No federal income tax is due on income distributions from these funds, and in some cases no state income tax.

While taxable funds may offer a slightly higher yield than tax-free funds, you pay income tax on all earnings distributions.

Many money market funds offer check-writing privileges, which do not trigger capital gains or losses, as writing a check against the value of a stock or bond fund would.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
As the large non-bank financial institutions shy away from offering mutual funds, it opens up the doors for banks to capitalize on the unmet needs of investors who may no longer be able to purchase institutional money market mutual funds. By offering money market deposit accounts, which typically have equal or better returns than money market mutual funds, banks can provide customers with a winning situation --money market accounts allowing for all the benefits with none of the risk.
The seven-day average yield on money market mutual funds was unchanged at 0.01 per cent from the previous week, according to Money Fund Report, a service of iMoneyNet in Westborough, Massachusetts.
The Role of Money Market Mutual Funds in the Crisis of Fall 2008
In recent years, the financial services industry has undergone extensive change, including a substantial increase in the amount of assets held in money market mutual funds.(2) Money funds are particularly interesting, because they offer investors the principal characteristics of many accounts at insured institutions--safety, liquidity, accessibility, and convenience.(3) These features of money market mutual funds, along with their rapid growth, have led some to believe that money funds are a close substitute for accounts at insured institutions.(4) The issue of substitutability, however, remains an unanswered question.
Thus, a telephone call again allows fund investors to shift in and out of M2-type accounts (that is, retail money market mutual funds).
(9) For more details on the money market mutual fund universe and the regulation of 2a-7 funds, see http://www.sec.gov/answers/mfmmkt.htm.
In September 2009, the collapse of Lehman Brothers spurred the formation of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) and the Commercial Paper Funding Facility (CPFF).
If you opt for a liquid, easy-to-cash-in solution such as a money market mutual fund, you can expect a low rate of interest in return--less than 1% according to iMoneyNet, a Website that tracks the market.
29 March 2011 -- Indonesian credit rating agency PEFINDO has upheld the idA+f credit quality rating on open-ended money market mutual fund PNM Pasar Uang Andalan Saya, managed by PT PNM Investment Management.
Shift allocation to 70% to 75% in growth stock mutual funds; 15% to 20% in biotech stocks; and 10% in an emergency savings account or money market mutual fund. In addition, Jackson believes it's crucial that all investors set up an emergency account of six to 12 months' income.
7 March 2011 -- Indonesian credit rating agency PEFINDO has lowered its credit quality rating on open-ended money market mutual fund Batavia Dana Kas Maxima to idAAf from idAA+f.
* Emergency fund: Most experts recommend a stash of six to nine months' worth of living expenses in a liquid account, such as a money market mutual fund.