Who Uses MMFs
What is a MMF?
A money market fund is a mutual fund that invests in the “money market.” In other words, it deals in the market for money—such as U.S. Treasuries, government obligations, repurchase agreements, commercial paper, and bank certificates of deposit. Because the average maturity for these investments is short term—90 days or less—and because they are very high quality, the investment risk is small. By investing only in a diversified, high-quality portfolio of short-term assets, money market funds are able to provide liquidity and attractive rates to investors.
Money market funds enable businesses to efficiently and affordably manage cash that can be invested and withdrawn on a daily basis because of the stable $1.00 share price. This feature makes them a leading investment for excess cash because of their convenience, simplicity, and reasonable rate of return.
Who Uses MMFs?
EVERYONE! Money market funds provide a safe, convenient, liquid investment vehicle for individuals, Main Street businesses, state and local governments, and other organizations to invest cash until it is needed. Money market funds also invest in the short term financing instruments of an array of borrowers. These short-term, low-cost borrowings let companies meet working capital needs; allow banks to finance credit cards, home equity, and auto loans; and help local governments build roads, bridges, schools, and hospitals.
Main Street Businesses: Because companies can have cash fluctuations in the millions of dollars each day, money market funds provide the liquidity necessary for these companies to earn dividends on excess cash while being able to withdraw funds quickly to pay expenses. Money market funds are also major buyers of corporate commercial paper, a flexible short-term borrowing mechanism for large businesses to get the necessary funding for their working capital needs on a timely basis.
Individuals: Retail investors use money markets funds and enjoy the historically higher yields than the average checking and saving accounts affords them. Like businesses, individuals enjoy the convenience and liquidly of money market fund to park excess cash, such as when purchasing a house and waiting for closing or between major transactions, such as college tuition payments.
State and Local Governments: State and local governments use money market funds because they have cash fluctuations, depending on when they generate revenue. Municipalities park their excess cash in money market funds, but their short-term bonds are also sold to these funds. The financing pays for local and state projects such as building schools, repairing roads and bridges, creating jobs, and spurring local economic activity.
Other Organizations: Universities, endowments, charities, port authorities, and nonprofit organizations use money market funds as a safe, liquid, and affordable cash management tool.