History

Bruce R. Bent established the first money market mutual fund in the United States in 1971 by offering his Reserve Fund to people interested in earning a bit more interest than the banks paid while still preserving capital. Three years earlier, Conta Garantia was started by John Oswin Schroy and it included small denominations of commercial paper in addition to federally-issued debt.

Size

In December of 2008, there were almost 2,000 money market funds in the US with assets of almost $3.8 trillion. Of those funds, about $2.5 trillion was held for institutions and of which more than 93 percent was tax-exempt. The remainder are retail money market funds that are held by individuals. They are primarily used as a place to warehouse funds for ultimate investment at brokerage firms like Vanguard, Fidelity or Charles Schwab. Banks across the country also offer money market funds, and the investor has the added advantage of being insured by FDIC, even though they receive somewhat less interest.

Types

There are several types of money market funds. The most safe are those that only invest in Treasuries, and they pay the smallest return. Then there are those invested in debt of other agencies of the federal government, followed by those invested in commercial paper issued by some of the country’s more highly regarded companies. All of them say they are of the highest quality; and unlike bond funds, they never are valued at a price other than $1 per share regardless of what may happen to interest rates.

Warning

Resources

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The Definition of Money Market Fund Rule 2a-7

Objectives of Internal Control

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