What Is A Money Market Mutual Funds?

A money market mutual funds is an investment with a low-risk, capable of providing liquidity while earning interest. This type of fund was established during the 1970s prior to money market accounts through banks or financial institutions allowed. The majority of money markets are investments in high-quality debt products offer for the short-term. A money market is not as risky as investing in funds in long-term bonds or stocks. There are numerous opportunities for offering good money market fund rates.

There are three different categories of money markets, tax-free, government, and prime. A prime money market mutual funds is generally an investment in short-term bank and corporate debt securities. Government money markets are securities with a minimum of 99.5 percent backing from the government. We have found this investment is incredibly safe. A tax-free money market is when funds invest mostly in debt obligations. These funds issues through entities or municipalities with federal tax exemptions regarding interest.

Are Money Markets Good Options?

Money market funds are often effective when added to an investment portfolio requiring high liquidity, with the lowest risk of loss. The higher the liquidity, the easier the investment can converted into cash. A good example is making an investment property. Liquidity is far less than a traditional savings account because several months will most likely require for the property to sold before any cash receives. A savings account offers high liquidity because funds obtain easily simply through visiting the bank

Money markets are a good option as they offer similar returns and high liquidity in comparison to other financial instruments such as treasury bills and CDs. The risk of the investor remains low. We have learned the majority of CDs must held until the maturity date reaches, or a penalty for early withdrawal assessed. There are also maturity dates for treasury bills. Money markets are different because no shelf life has established. When cash requires, the investor can simply liquidate the money market.

Money market account

Money markets are actually similar to opening a money market account or high-yield savings. The key difference is the yields from the money market can increase along with the interest rates. As interest rates increase, the yield for the majority of bank money markets remains flat. These money market fund rates set by the actual banks. We have watched as the yields for money market mutual funds have increased. This is the reason we believe money market mutual funds are a good investment for earning interest while holding onto the cash.

When the individual investor intends to make a large ticket purchase in the near future, money markets are a good way to ensure the cash is available. A good example is an individual saving money to make a down payment for a home. There is a good chance this individual is waiting until they find the ideal home. In this instance, the stock market is far too risky since the individual intends to purchase a home soon. The funds can easily decrease due to the volatility of the market. They are too large to place in a checking account or savings account due to the lost potential for interest.

What Is A Money Market Mutual Funds Benefits?


Federal regulations mandate funds invest for the short-term. This makes money markets a low risk-investment not as likely to impact through fluctuations in the market when compared to other investments.


Money markets have less volatility than an investment in any other type of money market mutual funds.


The money market usually comprise of numerous different types of securities. This eliminates exposure to a single user.


The liquidity enables investors to settle brokerage accounts trades used to make different investments because cash from money markets is available during the business day.

Short Duration:

Money markets have a short duration. The maximum is usually a few months. We have found the risk for the interest rate is lower than making an investment requiring a long period of time to reach maturity.

Potential Tax Benefits:

Certain money markets are an investment in securities with interest payments generally exempt from federal and state income taxes. These funds are potentially a tax-efficient and stable income source.

Evaluating Money Markets

Understanding the question of what is a money market fund also means understanding how to conduct a thorough evaluation prior to making an investment. Investors can reach their goals due to the liquidity, diversification, quality, and maturity requirements for money markets. Prior to selecting a money market, the investor should evaluate the specific characteristics according to their strategy and the investment objective.

The objective we encounter the most frequently is providing income while preserving the principal. Both the United States government and treasury money markets potentially offer a lower return profile and credit risk in comparison to prime money markets. Municipal money markets are often ideal for non-retirement accounts provided the account is not tax-shielded.

Types of Money Markets

Federal regulations require money markets to offer a high credit score quality, and short maturity. The money market must in compliance with the regulatory requirements for the industry regarding diversification, liquidity, maturity, and quality. There are numerous types of money market investments available including:

  • United States treasury securities
  • Eurodollar deposits
  • The certificates of deposit
  • Federal agency notes
  • The Repurchase agreements
  • Corporate commercial paper


A minimum of 99.5 percent of the assets of treasury money market fund is in cash. This includes a minimum of 80 percent of the total assets invested in repurchase agreements or securities from the United States treasury.

U.S. Treasury:

In most circumstances, a minimum of 99.5 percent of the assets invest in either United States treasury securities or cash. This includes a minimum of 80 percent in the United States treasury securities.


In most cases, a minimum of 99.5 percent of the assets is invested in fully collateralized repurchase agreements, United States government securities or cash. This includes a minimum of 80 percent repurchase agreements and United States government securities.

National Municipal:

The general rule is investing 80 percent of the assets in municipal securities. The interest is exempt from income tax charged through the federal government.

State Municipal:

A minimum of 80 percent of the net asset generally places in municipal securities with interest exempt from both state and federal income tax.

Institutional and Prime Money Markets:

These types of funds are not qualified as retail funds. Institutional investors can hold these types of funds. The funds are potentially subjected to redemption gates and fund‘s liquidity fees. Investors should aware there are fluctuations occurring occasionally.


We frequently hear prime money markets referred to as general purpose. An investment in these assets is eligible for all money markets with a dollar denomination from the United States according to the applicable laws of the United States Security and Exchange Commission. This includes every type of money market listed as:

  • Private instruments from foreign and domestic issuers
  • Commercial paper
  • The Corporate notes
  • Potentially reverse and repurchase agreements
  • Certificated of deposit


Tax-exempt money markets often called municipal. Two categories are tax-free and taxable. There are fewer options with tax-free money markets. The investment is in debt obligations for the short-term issue by entities with federal tax exemptions. Their fund‘s yield is much lower.

Institutional and Retail Prime:

The retail prime and institutional procedures and policies have created for the limitation of owners to individual investors. Despite maintaining a stable value, these funds include potential redemption gates and liquidity fees.

Which Money Market Fund is Best?

The best money market is partially dependent on the specific needs of the individual. There are also certain factors making one money market more appealing than another. It has an annual fee for ownership of a maximum of 0.25 percent. Any fee above this is considered too high by the majority of money market investors. A yield of 2.1 percent is considered good, with a benchmark of 1.4 percent often used to classify the best available options. The money market available consistently change along with the associated potential yields, percentages, and fees.

The best option for determining the right money market for each individual is conducting research. Investors should look for current options with low expense ratios and high yields. The main benefit is the liquidity provided while the interest rate maintain. Despite the yields often changing on a daily basis, a money market is still considered a much better option than traditional savings account due to the potential for higher interest.


Is the money market safe?

The money market forms part of the great financial market. This is where short-term financial assets traded, which have a low risk and high liquidity. Moreover, the purpose of the money market is to offering banks, public institutions, and other financial institution, the option of transforming their wealth into securities with a high degree of liquidity at all. When it comes to making investments inside this money market environment, safety comes first. All users are thinking if they can trust on this. The answer is quite comforting since money market instruments are extremely volatile, rendering prime funds are very secure for investors.

What are government money market funds?

Money market funds are known to be a very low-risk type of money market mutual funds. Where short term and high-quality investments, where there is low risk. In a government money market fund, there is more liquidity in the investment of its assets. Then, this preserves liquidity and daily money, thanks to the guarantee that the repurchase agreements and its government securities have. Maybe there is almost no risk, but there is one anyway. There is one risk commonly associated with money market funds that are the risk of inflation, which is the risk that over time inflation will outperform and erode investment returns. In addition, there is a risk of losing money by making unplanned and untested investments.  

Is money market a good investment?

There are several advantages to having a money market account, one is the interest rate paid to account holders. It is an option you can consider to have financial agility in your investments. In many cases, a money market account pays a higher interest rate than a traditional business savings account. We should be aware that various financial institutions offer what is known as tiered interest. When this is the case, the interest rate increases when more money deposits into an account. This provides businesses with a potentially lucrative method of storing excess capital resources.

What is a money market account definition?

A money market account concept comprises a common form of deposit account issue by banks and credit unions. Such money market accounts are additionally classified as bank accounts on the stock market or investment accounts on the capital market world. The money market‘s most significant role is to impact the general population and economic operators, in particular, who may retain part of their capital in the form of shares or, in any case, shares with strong liquidity and profitability. They also define it as the market with wholesale, low risk, and high liquidity assets that are issued in a short term of 18 months at best.

Can you lose money in a money market fund?

When you invest or buy stocks, you can lose money as well as earn it. Even more, since it is basically safety, and you can lose it anyway. It is always a good idea to invest, but you always need to have a preliminary preparation including goals and a review of basic instruments in order to be able to do with success anything you wish to do. When buying stocks, there is no guarantee that the value of a stock will keep equal or increase, implying that you could lose money if the price of the stock falls. However, a fund manager can do the best to make sure the price stays the same but still does not prevent you from losing money. As you can win, you can lose, and that is why business planning, strategies, and analysis are vital to avoid mishaps.