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Old 12-16-2005, 10:34 AM
SuitedPair SuitedPair is offline
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Join Date: Nov 2004
Location: Lost, after a wrong turn
Posts: 14
Default Re: How Does a Money Market Account Work?

A money market account is simply a mutual fund that is invested in short-term debt instruments. Just looking at JPMorgan’s Prime Money Market Fund (annual report happened to be laying around the office – I don’t work there and this is not an endorsement), its holding consists of:

1% - Asset Banked Securities
27% - Corp. Bonds
1% - Funding Agreements
3% - Gov’t Agency Securities
20% - CDs
24% Commercial Paper
19% Repos
5% Time Deposits

The yield that you get is a function of what the fund is invested in less an expense fee. This report is dated 8/31/05 and the fund yielded 3.22%. Because these are usually so large (this one $74 B) fees are usually low, about .5% in this case.

They are considered more risky because they have default risk, although it is minimized by the short-term nature of the securities held. I think there has only been one fund that has “broken a buck” but the mgmt company might have reimbursed the fund. I’ll check on that.

In order to handle withdrawals, the securities are liquid and the average maturity is very short, 44 days for the above fund.

These funds are managed by a fund manager usually there is a group of managers that manage several at a time. The annual report for the JPMorgan fund was for 6 total funds. The others are for specialized needs.

Federal Money Market – safer than the regular as it only invests in federal agency paper.
100% US Treasury – even safer than the Federal above.
Tax Free
California Municipal
New York Municipal
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