A money market fund is a fund that invests in short-term securities in the money market. The fund’s assets are mainly invested in short-term monetary instruments such as treasury bills, commercial paper, bank certificates of deposit, short-term government bonds, corporate bonds and other short-term marketable securities.
Relevant Legal Knowledge:
Money market funds were first established in the United States in 1972. By the end of 1986, there were more than 400 money market funds in the United States, with total assets exceeding $290 billion. In the United States, money market funds can be divided into two categories according to the size of the risk:
- Treasury bill money market funds, which mainly invest in treasury bills and government-guaranteed securities. These securities typically mature in less than a year, with an average maturity of 120 days.
- Diversified money market funds, commonly referred to as money market funds, usually invest in various securities such as commercial paper, Treasury bills, securities issued by U.S. government agencies, negotiable certificates of deposit, bank acceptance notes, etc. The timing is similar to the aforementioned funds.
- Tax-exempt monetary funds, high-quality municipal securities mainly used for short-term financing, including municipal mid-term bonds and municipal long-term bonds. The advantage of tax-exempt money funds is that they can reduce taxes, but they usually have lower yields (about 30% to 40% lower) than general money market funds. It is not cost-effective for investors to choose this fund when the tax rate is not high.
Money Market Fund Characteristics
Compared with traditional funds, money market funds have the following characteristics:
- The main difference between money market funds and other funds that invest in stocks is that the net asset value of the fund unit is fixed, usually 1 yuan per fund unit. After investing in the fund, investors can use the income to reinvest, and the investment income will continue to accumulate, increasing the fund shares owned by the investor. For example, if an investor invests 100 yuan in a money market fund, he can own 100 fund units. After one year, if the investment return is 8%, then the investor will have 8 more fund units, a total of 108 fund units. 108 yuan.
- The standard to measure the performance of money market funds is the return rate, which is different from other funds that make profits by increasing their net asset value.
- Good liquidity and high capital security. These characteristics are mainly due to the fact that the currency market is a low-risk, high-liquidity market. At the same time, investors can transfer fund units at any time according to their needs without being limited by the expiration date.
- Low risk. The maturity date of money market instruments is usually very short, and the average maturity of money market fund investment portfolio is generally 4 to 6 months, so the risk is low, and its price is usually only affected by market interest rates.
- Low investment cost. Money market funds usually do not charge redemption fees, and their management fees are also relatively low. The annual management fees of money market funds are about 0.25% to 1% of the fund’s NAV, which is 1% to 2.5% higher than the traditional fund’s annual management fee. Low.
- Money market funds are open-ended funds. Money market funds are generally regarded as risk-free or low-risk investment vehicles, suitable for short-term capital investment to earn interest in case of emergency, especially when interest rates are high, inflation is high, securities liquidity is declining, and credibility is reduced. The principal is protected from loss.
