Best Money Market Funds

You may not have heard of money market funds due to the simple fact that this kind of fund is among the really old funds for investments. In fact it is often connoted to be the grandfather of all investments, it's probably even older than most stock exchanges.

About Money Market Funds

As mentioned above the concept of money market and money market funds is historic and older than some of the biggest stock exchanges and stock based funds. Most of the economies in the world operate on two types of markets, namely, the stock market and the money market. The stock market as all of us know helps us to invest in securities of companies. In contrast, the money market is a set of short term debts (term less than 12-13 months), such as IOU instruments, bills, bonds and debts that have short term maturity. In some cases, some types of loans and mortgages are also included in such markets. Another differentiating factor of the money market is that it does not have an exchange or specified market. The transaction is carried out on inter-personal basis. Some common instruments which encompass the spectrum of the money market include, bankers' acceptances, Certificate of deposit, Repurchase agreements, Commercial paper, Eurodollar deposit, Money funds, Short-lived mortgage, Treasury bills, Municipal notes, Federal funds, etc.

A money market fund, is basically a mutual fund that invests into a money market and instruments of the money market. When you invest into a money market, the fund manager pools together the share or interest of thousands of people into one big pool and then invests the entire or partial pool into a well performing, secured and insured set of money market instruments, which are bought and sold for profit or are simply bought in and retained till maturity. The safety of the instrument, make the money market fund the safest fund with conservative return on investment. These funds are rarely affected by economic phenomenon such as inflation, deflation and economic recession.

The United States Securities and Exchange Commission's (SEC) Investment Company Act of 1940 is the governing act for the money market funds. The principle definition also consists of core features of such funds:

• The contributions and investments into the funds would be connoted to be 'shares' of the fund.
• The fund and fund manager would invest the fund resources in the highest rating (safe yet high yielding) debts, investments, instruments, securities and bonds.
• The maturity of the debts, investments, instruments, securities and bonds shall be below 13 months, that is a short term.
• The fund must have a weighted average maturity (WAM) of 60 days or less and more than 5%, of the fund cannot be invested into the same source except government based securities.
• The fund is to maintain an exact $1 Net Asset Value (NAV), i.e. asset minus liability, at any given point of time.

These characteristics make the money market funds very safe yet conservative on returns. In some cases a very similar investment channel known as the money market accounts, which operates in the very same manner is also used. The big advantage is that you do not have to make any specific amount of investment in this account, though there is an upper and lower limit. The money market fund in contrast has a specified lump sum or fixed investment installment policy for its every 'share'.

Note: when any money market fund's Net Asset Value (NAV) comes down blow, $1, the fund has said to have "broken the buck". Such an incident is so rare that it has happened only thrice in the 37 year history of money market funds. Talk about stability! This thing's as stable as land prices in a desert!

Best Money Market Funds

Though money market funds are conservative on returns, there are several parameters with the help of which a fund can be judged. The most common is its performance. The return rates and size of the fund also matter significantly due to fact that larger the pool, greater is the fund's power in the market, and thereby better is the return rate. Thus the best money market mutual funds, do have huge sizes and magnificent performance. By the virtue of size, stability and reputation, the following are some mammoth funds:

• JPMorgan Prime Money Market Fund
• BlackRock Funds
• Western Asset Funds
• Federated Funds
• Bank of America Funds
• Dreyfus Funds
• AIM Funds
• Evergreen Fund
• Fidelity Investments' Cash Reserves
• Fidelity, Vanguard
• Schwab

Here are some of the best performing money market funds, that have ruled the market of recent:

• Vanguard US Treasury Money Market Fund
• Russell Money Market Fund
• Payden & Rygel Cash Reserves Money Market Fund
• Federated California Municipal Cash Trust Institutional Fund
• Alpine Municipal Money Market Fund
• Fidelity New Jersey AMT Tax Free Money Market Fund
• Ambassador Money Market Fund Institutional
• Gabelli US Treasury Money Market Fund
• Fidelity Select Money Market Portfolio
• Dreyfuss Money Market
• Marshall Tax Free Money Market Fund
• PayPal MMF

The aforementioned are among the best investments in the money market funds. There are several more classifications for such funds, such as Retail money fund and, Institutional money fund. There are several others such funds that invest only in corporate instruments, or the ones that invest only in government securities. As mentioned above, the money market funds are cheap to enter and invest in, safe and stable. However, they tend to provide a low and a very constant and conservative rate of return.