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Money funds (or money market funds, money market mutual funds) are mutual funds that invest in short-term debt instruments. They provide the benefit of pooled investments, as investors can participate in a more diverse and high-quality portfolio than they otherwise could individually. And like other mutual funds, each investor who invests in a money fund is considered a shareholder of the investment pool, a part-owner of the fund.
The first money fund - The Reserve Fund - was established in 1972, enabling the small investor to invest in these instruments. Today, more than 1300 money funds are in operation, with total assets of over $1 trillion dollars.
Institutional money fund
Institutional money market funds are held primarily by businesses, governments, institutional investors, and high-net worth households. Institutional funds hold roughly half of all money market fund assets.
The largest institutional money fund that invests in top-rated corporate debt as well as Treasury securities is the AIM Short-Term Investments Company Liquid Assets Portfolio, with more than $31 billion in assets as of Dec. 11, a record, according to the company. Goldman Sachs Financial Square Federal Fund, with more than $10 billion in assets as of Dec. 11, is the biggest institutional money fund that invests only in Treasury and agency securities and repurchase agreements.
Retail money fund
Retail money funds are offered primarily to individuals with moderate-sized accounts. Retail money market funds hold roughly half of all money market fund assets.
Retail money funds invest in short-term debt, such as Treasury bills and commercial paper, come in a few different breeds: government-only funds, non-government funds and tax-free funds. You will get a slightly higher yield in the non-government variety, which will invest in high-quality commercial paper and other instruments. For example, the seven-day average yield (no compounding) for non-government funds was 4.18% ending May 25 1999, compared with 4.09% for taxable government-only funds, according to Connie Bugbee, editor of IBC's Money Fund Report.
The largest retail money fund is Salomon Smith Barney's Cash Portfolio, with assets exceeding $54.9 billion, according to the Money Fund Report.
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