How do money market mutual funds work?

Money market mutual funds are a good option for those who wish to make a big investment as the returns are good and there is a lot of liquidity in it as well.  Money market mutual funds are slightly different as there is no backing from the federal agencies but the Securities and Exchange Commission or the SEC guards the money invested.  The money is only invested in safe and reliable securities where the average maturity is 120 days or less.  The investments made are mostly in government issues as these are the safest bet and in spite of the low yield it is still better than that of the savings account.

Investors should be well informed with regard to the fees that are applicable in the money market mutual funds.  The biggest fee is called the expense ratio.  Here a percentage of the fund is charged as the fee to cover the operational costs.

However, for the money market funds the fees applicable are pretty low around 0.5%.  There might be other transaction fees and other such fees that one needs to be aware of.

Money market funds will give returns ranging from 1% to 3% but one may not necessarily get 3% returns.  Money market funds and its performance is tied to the rate of interest set by the Fed.

Money market funds operate more like a checking account and funds are liquid and can be obtained by signing a check or through automated electronic exchange etc.  Money market as well as savings accounts is for those who have a requirement for easy accessibility to their money.

There is a wide range of options while choosing funds to get relief from tax burdens.  For those who are in the high tax bracket (state) but low tax bracket (federal) then investing in the U.S. Treasury money market fund is the best option.  There are other funds that are tax free (both fed as well as state tax) and these are good options as well.

Although there are various types of funds, they basically invest in the same kind of securities and the returns might not vary too much.  Where there are low operating costs, the fund will automatically produce better yields.  The yardstick should be the annual operating cost which should be around 0.5% or less.  The operational costs will be lower for funds that are successful.

With money market funds one can transfer money into their checking accounts as there is absolute liquidity.