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Federal Money Market Mutual Funds
| In simple words, money market mutual funds invest in short-term securities that generally have low risks. You are entitled to get dividends from money market mutual funds and these come from short-term interest rates. |
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The net asset value (NAV) per share of a conventional mutual fund changes on a daily basis depending on the prevailing mutual fund market factors. However, money market mutual funds are structured in such a way that they changes are avoided by ensuring that the NAV of money market mutual fund is maintained at $1 per share.
You can buy or sell the shares of money market mutual funds at any time. Many investors use money market mutual funds to park their money when they are in between investments as the interest rates are comparable to savings accounts.
There are two types of money market mutual funds. One is tax exempt and the other is taxable. Tax exempt money market mutual fund is issued by the state or local government. This type of mutual fund is exempt from federal income tax as well as state income tax. Whereas taxable money market mutual fund includes U.S. Treasury securities, federal agency notes, commercial papers and certificates of deposit.
The tax exempt money market mutual funds are a real bonus for people investing in federal money market mutual funds, especially those who are in the higher federal income tax bracket. As these mutual funds are exempt from federal taxes, you do not have to worry about parting with money on the returns.
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