Federal Money Market Mutual Funds
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Apart from checking accounts and savings deposits, mutual funds are another interesting investment option offered by banks. There are various types of mutual funds depending on the investment portfolio of total assets. One such variety is the money market fund where the money is primarily invested in high-quality short-term securities that have minimum credit risks.
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Money market mutual funds are the safest of all mutual fund categories and have a stable investment history and constant NAV (Net Asset Value). However, these mutual funds are not insured by the federal deposit insurance corporation (FDIC) or any other government agency. In the U.S. alone, there are more than 800 money market mutual funds being operated with a total asset value of $2.54 trillion.
Money market funds are structured in a way that they are not affected by any fluctuations in the market like stocks and bonds. Average maturity term of a money market mutual fund is 91 days. NAV per each share in money market funds is constantly priced at $1 per share. Yield in case of a money market fund is often determined in the form of simple or compounded over a 7 day or 30 day period.
These funds operate under strict guidelines of the U.S. Securities and Exchange Commission (SEC) and are available as both taxable and tax-exempt funds. Taxable money market fund investments include the U.S. Treasury Securities, federal agency notes, certificates of deposit and commercial paper. Tax-exempt money market funds are exempted from paying federal or state income tax on the dividends. These funds primarily invest in instruments and short-term securities issued by state governments or local municipalities.
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