Money Market Fund is an open ended mutual fund which invests only in money markets. These funds are invested in short-term debt obligations like certificate of deposits, treasury bills and commercial paper. These funds are significant providers of liquidity to financial intermediaries.
Types of Money Market Funds:
Institutional Money Funds: These are high minimum investment. And these are low expense share classes which are marketed to governments and corporations. These are set up often so that money is swept from a company’s main operating accounts to them overnight. Across the country often large national chains have many accounts with all banks, but pull a majority of funds electronically on deposit with them to a concentrated money market fund.
Retail Money Fund: These funds presented to individuals primarily. Roughly 33% of all money market fund assets are held by retail money market funds.
Retail money funds in short-term debt, like commercial paper and US Treasury bills and come in various kinds: non-government funds, government only funds and tax free funds. Return are considerably higher than in savings accounts. A slightly higher yield will be obtained by investors in the non government variety. Generally instruments of United States government are relieved from state income taxes, and contrary, generally mini bond funds are relieve from federal income tax. Yields are lower in both the cases but may result in better conservation of value and it depends on tax situation of an individual investor.