Frequently asked questions
Why can yields on money market mutual funds be very low during some periods?
Money market mutual funds own a well-diversified pool of high quality, short-dated, interest-paying securities, and pass along the income earned on those securities (after fees) to the funds’ shareholders. When the yields on the securities in which money market mutual funds invest are quite low, the yields that the funds are passing along to their shareholders are also quite low. The interest rate policy of the Federal Reserve (the Fed) is a key driver for money market rates.
How short is “short term” for the securities in which money market mutual funds can invest?
The rules that govern money market mutual funds permit the funds to buy only securities that mature in 397 days or less. At least 50% of the fund’s total assets must be invested in Weekly Liquid Assets, which can consist of cash, direct obligations of the U.S. government such as U.S. Treasury bills, certain other U.S. government agency debt that is issued at a discount and matures within 60 days or less, or securities that will mature or are payable within 5 business days. For taxable funds, at least 25% of the fund’s total assets must be invested in Daily Liquid Assets, which can consist of cash, direct obligations of the U.S. government, or securities that will mature or are payable within one business day.2 The remaining investments can be in longer-term issues, provided the overall weighted average maturity of the fund is 60 days or less.
Why doesn’t the government offer insurance on money market mutual funds?
The U.S. government does not offer insurance on any type of mutual fund. Money market mutual funds, like bond and stock mutual funds, are investments, and, as such, are not guaranteed. It is important that investors understand that.
