All that you need to know about money market mutual funds

Money market mutual funds are investment options that are short term in nature. They are very liquid and hence are very safe. They are comparable to Treasury bills, government securities, deposit certificates and commercial papers. Hence they are widely promulgated as a good investment option for people who want good returns on low risk investments.

The good thing about a money market fund is that the money is easily accessible. And hence they are considered to be comparable to savings account in terms of liquidity. And what’s more, money market mutual funds are available with free checks and ATM or bank cards for ready access to cash wherever you go. There are many other benefits to having a money market fund including,

• Withdrawal privileges anywhere and anytime. All you need is an ATM. You will not be charged any penalties for withdrawal. This is unlike a certificate of deposit where you will have to pay a penalty in order to withdraw money in advance to the maturity date. While some certificates will have an option to withdraw money in advance, not all will have this option.
• Its very easy to set it up. It can be funded very easily by linking it to a checking account.
• Nowadays money market funds are considered to be equivalent to cash accounts.
• They are extremely safe and reliable. This is because the SEC requires the money market funds to invest as much as 95% of their asset base in tier one securities like highly rated privately issued paper and T-bills. 

Money market accounts provide much higher returns than savings accounts. You can also easily link your brokerage money market funds directly into bond or stock funds. You can directly take dividends or the interest into the money market funds so that you will have an increasing principle. This way you will be making your money work in two ways. Both in the stock market and in the regular safe money market securities. The proceeds that you get from these stock markets can be just kept in the money market funds until you find better options to invest it. Till then it will be making a basic amount of money. 

Also if you fall under the high income bracket, you will benefit from tax exemption money market funds that exclusively invest only in securities that are given out by government bodies. There are very few risks in a money market fund, but there have been rare cases where the NAV has even fallen below the one dollar threshold. But this is a rare occurrence. And again, one cannot totally ignore this since it might happen way too often given the current economic scenario. Its always better to diversity your funds so that you do not take on too much risk on your investments.

Money market funds are also regulated by several rules that are set by the government. The basic framework rules include the rule 2A-7 from the year 1940 through the investment company act. And again, redemptions have to pay out within a period of seven days.