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How to Invest in Money-Market Funds?
Steady prices that money-market mutual fund shares offer investors the advantage of being able to add and withdraw funds from these accounts without having any tax consequences. In comparison, the short-term bond mutual funds don’t have and does not count with those steady prices of shares resulting that when these shares are sold due to fluctuation in sales price there are capital gains or losses. For this reason, you should not want to invest your short-term bonds fund instead of a money-market mutual fund.
As to invest in a money-market fund, call the fund company (most have toll free telephone numbers), or download the prospectus and application form from the funds’ web site. The Internet provides a comprehensive list of all the mutual fund families.
The Securities and Exchange Commission (SEC) requires mutual fund companies send the prospectus to new investors be it by mail or through internet.
The prospectus includes information about the fund such as:
- The least amount of money necessary to open an account
- How the investor will withdraw funds from the account
- The objectives, policies and investment restrictions made by the fund
- Who will manage the fund, the honoraries collected by the managing company, and the detailed description of their operative expenses and other charges.
- The funds’ financial statements
Read the prospectus before filling in the application form. Once filled in, it must be mailed to the chosen fund with the check for the corresponding amount to open an account attached, or transfer the amount electronically through Internet.
You will receive balance sheets and monthly reports showing you the number of shares in your account as well as deposits, withdrawals, and dividend incomes.
Many of the funds require minimum amounts (generally $100) to make additional investments.
You can withdraw money at will from your money-market funds in different ways:
- Writing a check
- Through electronic transfers from the fund to your bank account
- Through checks drawn by the fund and sent by mail to your account in response to your written withdrawal requirement.
- Through transfers to other funds within the same investment company’s family of funds.
- Through the use of a systematic withdrawal plan (SWP), through which the fund sends you a periodical check to your bank account or any other place assigned by you.
Warnings
- Choose a money-market fund belonging to an investment company that owns a wide range of different funds giving you a larger flexibility to transfer them to other types of investment funds.
- Avoid funds that have sales charges, redemption fees, and high management and expense ratios.
- Avoid keeping too much money in money-market funds because through a long term due to the real return rates that offer money-market funds which have very few chances of exceeding inflation rates.
- Avoid choosing short-term bond funds before locating your money during short periods of time. In the short-term bond funds you could experiment losses in your principal if share prices fall below buying prices.