Types of Money Market Funds

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Types of Money Market Funds

Sam Bourgi

|

money market fund types
Seasoned mutual fund investors are very familiar with money market funds (MMFs). Developed in the 1970s, MMFs give investors the option of purchasing a pool of securities that typically generate higher returns than interest-bearing bank accounts.

The size, scope, and availability of MMFs have grown exponentially over the past four decades. As a result, there are many kinds of MMFs that give investors exposure to all types of fixed income instruments, including government securities, tax-exempt municipal securities, and corporate debt securities.

For the purpose of this article, we will break down MMFs into three categories: prime, government, and tax-exempt. In all these cases, MMFs are regulated by the U.S. Securities and Exchange Commission (SEC).

Follow our Money Market Funds Section to learn about money market funds. To find the funds that meet your investment criteria, check out our Mutual Funds Screener.

Prime Money Market Funds

Prime funds are MMFs that invest primarily in corporate debt securities. Since 2014, prime funds have been further divided into two categories that reflect the type of investor accessing them: Prime Retail, which maintains a stable net asset value per share, and Prime Institutional, which has a floating net asset value per share.

As of May 31, 2019, more than $1 trillion in assets under management (AUM) were held in prime funds, according to the SEC’s latest MMF Statistics report. More than 60% of the total was held in Prime Institutional funds. Examples of prime money market funds include the Vanguard Prime Money Market Fund (VMMXX) and the BlackRock Liquidity FedFund Administration (BLFXX).

Want to check out other funds by Vanguard and Blackrock? Click here and here.

Government Money Market Funds

The Office of Financial Research (OFR) classifies Treasury, Government/Agency, and Tax Exempt Government asset categories as Government funds. In each case, Government funds allocate most of their assets in cash, government securities, and repurchase agreements that are backed by these securities.

Government money market funds underwent a definitional change in 2014. As a result, these funds now have the option of omitting liquidity fees and redemption gates. Both tools are used by fund managers to discourage investors from withdrawing their assets. Government funds that employ liquidity fees and redemption gates are classified as ‘Government (Fees and Gates)’ funds.

Government money market funds were valued at more than $2.4 trillion as of May-end 2019. Examples of government money market funds include American Century Capital Preservation Fund (CPFXX) and the Fidelity Government Money Market Fund (SPAXX).

Be sure to check our News section to keep track of the recent fund performances and developments in the mutual fund industry.

Tax-Exempt Funds

Money market funds that invest primarily in securities exempt from local income taxes are referred to as tax-exempt funds. Under usual circumstances, tax-exempt funds are issued by local governments and other municipal organizations.

Since 2014, tax-exempt funds have been divided into two categories based on investor type. Funds that are designed for individual investors are called Tax Exempt Retail, which is allowed to maintain a stable net asset value per share. All other tax-exempt funds are called Tax Exempt Institutional and have a floating net asset value per share.

As of May 31, 2019, tax-exempt funds had nearly $140 billion in assets under management, with more than 90% being held in retail funds.

Examples of tax-exempt money market funds include the Vanguard Municipal Money Market Fund (VMSXX) and the T. Rowe Price Summit Municipal Income Fund (PRINX).

The Bottom Line

Regulations surrounding MMFs have undergone several revisions since the 2008 financial crisis. Money market funds today typically carry less interest rate, credit, and liquidity risks than before the crisis. The SEC hasn’t ruled out additional regulatory changes as the market for MMFs continues to evolve.

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money market fund types

Types of Money Market Funds

Sam Bourgi

|

Seasoned mutual fund investors are very familiar with money market funds (MMFs). Developed in the 1970s, MMFs give investors the option of purchasing a pool of securities that typically generate higher returns than interest-bearing bank accounts.

The size, scope, and availability of MMFs have grown exponentially over the past four decades. As a result, there are many kinds of MMFs that give investors exposure to all types of fixed income instruments, including government securities, tax-exempt municipal securities, and corporate debt securities.

For the purpose of this article, we will break down MMFs into three categories: prime, government, and tax-exempt. In all these cases, MMFs are regulated by the U.S. Securities and Exchange Commission (SEC).

Follow our Money Market Funds Section to learn about money market funds. To find the funds that meet your investment criteria, check out our Mutual Funds Screener.

Prime Money Market Funds

Prime funds are MMFs that invest primarily in corporate debt securities. Since 2014, prime funds have been further divided into two categories that reflect the type of investor accessing them: Prime Retail, which maintains a stable net asset value per share, and Prime Institutional, which has a floating net asset value per share.

As of May 31, 2019, more than $1 trillion in assets under management (AUM) were held in prime funds, according to the SEC’s latest MMF Statistics report. More than 60% of the total was held in Prime Institutional funds. Examples of prime money market funds include the Vanguard Prime Money Market Fund (VMMXX) and the BlackRock Liquidity FedFund Administration (BLFXX).

Want to check out other funds by Vanguard and Blackrock? Click here and here.

Government Money Market Funds

The Office of Financial Research (OFR) classifies Treasury, Government/Agency, and Tax Exempt Government asset categories as Government funds. In each case, Government funds allocate most of their assets in cash, government securities, and repurchase agreements that are backed by these securities.

Government money market funds underwent a definitional change in 2014. As a result, these funds now have the option of omitting liquidity fees and redemption gates. Both tools are used by fund managers to discourage investors from withdrawing their assets. Government funds that employ liquidity fees and redemption gates are classified as ‘Government (Fees and Gates)’ funds.

Government money market funds were valued at more than $2.4 trillion as of May-end 2019. Examples of government money market funds include American Century Capital Preservation Fund (CPFXX) and the Fidelity Government Money Market Fund (SPAXX).

Be sure to check our News section to keep track of the recent fund performances and developments in the mutual fund industry.

Tax-Exempt Funds

Money market funds that invest primarily in securities exempt from local income taxes are referred to as tax-exempt funds. Under usual circumstances, tax-exempt funds are issued by local governments and other municipal organizations.

Since 2014, tax-exempt funds have been divided into two categories based on investor type. Funds that are designed for individual investors are called Tax Exempt Retail, which is allowed to maintain a stable net asset value per share. All other tax-exempt funds are called Tax Exempt Institutional and have a floating net asset value per share.

As of May 31, 2019, tax-exempt funds had nearly $140 billion in assets under management, with more than 90% being held in retail funds.

Examples of tax-exempt money market funds include the Vanguard Municipal Money Market Fund (VMSXX) and the T. Rowe Price Summit Municipal Income Fund (PRINX).

The Bottom Line

Regulations surrounding MMFs have undergone several revisions since the 2008 financial crisis. Money market funds today typically carry less interest rate, credit, and liquidity risks than before the crisis. The SEC hasn’t ruled out additional regulatory changes as the market for MMFs continues to evolve.

Sign-up for our free newsletter to get the latest news on mutual funds.


Sign up for Advisor Access

Receive email updates about best performers, news, CE accredited webcasts and more.

Popular Articles

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.


Read Next