Liquidity

• One aspect of MMFs that attracts both private investors and businesses is that the funds represent a good place for a temporary stash of cash between longer term investments. They may also be used as a means to save for a down payment on a special purchase. MMFs provide liquidity, and many may be linked to a checking account, providing instant access to your money. The number of withdrawals per quarter may be limited.
  
  

Stability

• An additional attraction investors to MMFs is the stability of the funds. Under U.S. Securities and Exchange Commission regulations, the majority of money market mutual funds must invest the bulk, 97 percent, of the fund's wealth in assets considered the least risky, such as U.S. Treasury issues and those of private industry that carry the highest credit ratings. The SEC also requires fund managers to provide full disclosure of the assets contained in the fund's portfolio on a regular basis. Thus, money market mutual funds are considered to pose the least risk of the various types of mutual funds available on the market.
  
  

Fees and Taxes

• Earnings from certain funds that invest in municipal money market securities are tax-exempt under federal regulations. Depending on your state of residence and the particular fund, these securities may be exempt from state income taxes. Most MMFs, regardless of the assets in the portfolio, pay better returns than money market accounts offered by banks. Most funds require an initial minimum investment, however, along with a minimum periodic deposit. If the fund charges an annual account fee, the account holder must to invest a significant amount of money to earn a competitive profit.
  
  

Earnings

• There are both pros and cons relative to the earnings from money market mutual funds. A plus factor is that most MMFs, regardless of the assets in the portfolio, pay better returns than money market accounts offered by banks. An the minus side, you may expect at best only a modest return on your investment. Earnings are at the lower end of the spectrum of available investments, due to the low risk associated with the types of assets in which MMFs invest.
  
  Mutual funds charge management fees, and some MMFs may charge an additional fee for withdrawals. That, combined with a sharp increase in the rate of inflation, may totally eliminate the value of any earnings or you may lose money.
  
  

Risk

• All investments carry some level of risk. Even though MMFs are among the least risky, one factor to consider before investing in a money market mutual fund is that these funds are not insured by the Federal Deposit Insurance Corporation (FDIC) like bank deposits. On the other hand, a broad portfolio of short-term money market issues spreads the risk across the entire fund, an aspect that significantly lowers the overall risks for investors.