What is a Money Market Mutual Fund?

Money market mutual funds are mutual funds that operate primarily in the money market. Compared with general funds, in addition to general fund expert financial management and diversified investment, it also has the following investment characteristics: investing in high-quality securities portfolios in the money market; providing a restricted deposit account; restricted by regulations Relatively small. Is a new investment and financial management tool. It appeared in the United States in the 1970s. Buyers purchase certain fund shares at a fixed price (usually $ 1), and fund managers use these funds to invest in profitable short-term money market instruments (such as Treasury bills and commercial paper). Buyers can also issue checks on funds held in shares in the fund. This fund is an open-end fund, which collects scattered funds of institutional and individual investors and invests in the money market to make a profit, thereby attracting many institutions and individuals to become the main body of the money market. ^[1]

Money market mutual fund

Right!

Money market mutual funds are mutual funds that operate primarily in the money market. Compared with general funds, in addition to the characteristics of general fund expert financial management and diversified investment, it also has the following investment characteristics: investing in high-quality securities portfolios in the money market; providing a restricted deposit account; restricted by regulations Relatively small. Is a new investment and financial management tool. It appeared in the United States in the 1970s. Buyers purchase certain fund shares at a fixed price (usually $ 1), and fund managers use these funds to invest in profitable short-term money market instruments (such as Treasury bills and commercial paper). Buyers can also issue checks on funds held in shares in the fund. This fund is an open-end fund, which collects scattered funds of institutional and individual investors and invests in the money market to make a profit, thereby attracting many institutions and individuals to become the main body of the money market. ^[1]

The first money market mutual fund in the United States, created in 1971 as an alternative to bank deposits, is a prime example of financial innovation in a changing market environment.

U.S. pairs in the early 1970s

The money market mutual fund is first of all a fund. At the same time, it is a fund that specializes in investing in money market instruments. Compared with general funds, in addition to experts with general funds,

1. There is no deposit insurance for money market mutual funds.

2. Due to the continuous innovation of deposits by commercial banks, high-risk and high-yield investment portfolios are not conducive to attracting stable investors.

With the continuous maturity of the market and the regulation of related rules, the homogeneity of the money market funds that have been issued in China is relatively serious. Judging from the current operation of various money market funds, it should be said that there are still some buying tips, which can be considered in terms of profitability and security.

Misunderstanding of profitable choices

In terms of profitable choices, there are two factors that investors should pay more attention to, one is the recent return indicator, and the other is the recent change in scale.

In fact, investors' perceptions of these two factors are generally misunderstood. In terms of near-term earnings indicators, many investors are only concerned about their level, and mistakenly believe that the current higher near-term earnings are good. This view is biased. The calculation of the money market fund's return rate is relatively complicated, and there are many specialized technologies, but basically it is still composed of the holdings' own income and the bid-ask spread. Money market funds with higher recent returns often include more bid-ask spreads in their returns, which will reduce future returns accordingly. Therefore, under the same conditions, buying a money market fund with lower recent returns may be a better choice. E.g. lower yield

Recently, money market funds have gradually been recognized by a large number of investors, and the size of assets has expanded rapidly. Their higher yield and liquidity than savings are indispensable.

The average returns of the seven comparable funds in 2004 reached 2.88%, which has a great advantage compared to the 1.8% after-tax interest rate after the interest rate increase.

Judging from the current quarterly yields in the fourth quarter of 2007, the yields of some money market funds even exceeded the same-year yields of the five-year time deposits after-tax interest rates. So how exactly does a money market fund

The complementary relationship between money market mutual funds and other types of funds

From the perspective of risks and returns, the risk of money market funds is the lowest. Therefore, in the asset portfolio, it can play a role in reducing the overall risk of the asset portfolio. Therefore, money market funds stabilize investment returns and reduce investment risks. It can meet the needs of some investors who seek high security, high liquidity and better profitability.

Because most of the money market instruments are low risk and easy to cash out. Therefore, money market funds can form complementary advantages with other types of funds. Manifested as:

1: Money market funds can change the current situation of China's fund investment mainly concentrated in the market, and the income decreases with the decline in market interest rates.

2: Become a savings alternative investment tool with free access, flexible investment amount, extremely low risk and good benefits.

3: Money market funds are conducive to the diversified operations of fund management companies, which is conducive to diversifying risks and improving the overall risk tolerance. And can become an investment conversion channel between the money market and the capital market.

4: The liquidity of money market funds helps improve the overall operating efficiency of the economy. Because the money market can guarantee sufficient liquidity, money market funds can be used as modern management tools for enterprises.

5: In terms of operation, investing in a money market fund is the easiest to operate and the process is the simplest. It is the most basic investment tool of all mutual funds.

Introduction

The purchaser purchases several fund shares at a fixed price (usually $ 1), and managers of money market mutual funds use these funds to invest in profitable short-term funds.

Money market funds have achieved an average annualized income of about 3.5%, and they have continued to increase in the near future. Some money market funds have achieved annualized returns of more than 8%. Combined with the "Interim Provisions on the Management of Money Market Funds" (hereinafter referred to as the "Regulations"), the current high returns in the money market and the differences in returns between different funds mainly come from the following aspects:

First, the "Provisions" states that the average remaining period of money market fund investment portfolios must not exceed 180 days. but

It does not clearly indicate whether it is a point-in-time limitation or a real-time limitation, which may cause some funds to hold bond varieties with longer remaining maturities during the operating period. However, short-term position adjustments are made at the time of periodic information disclosure, and the combination period At that point the 180-day limit was met.

Second, the "Provisions" does not specify the calculation method of the combination period, that is, whether to use the net asset weighting or the total asset weighting. In this case, each fund may adopt a total asset weighting that is beneficial to itself, which will inevitably cover the actual remaining maturity of the fund portfolio (the net asset weighting is more reasonable, because the total assets include possible leverage amplification, thereby covering actual risks), Enable some funds to hold bonds with longer maturities and corresponding returns even at the time of information disclosure.

Third, for floating-rate bonds, the "Provisions" states that: the variable rate or floating rate bonds with market interest rate as the benchmark interest rate, and the interest rate adjustment frequency of less than one year, the remaining period of the bond is equal to the remaining day from the calculation date. time. This provision does not clearly define what the market interest rate is, and it is unreasonable to provide for the traditional maturity of floating rate bonds that adjust interest rates once a year (with a one-year time deposit rate as the benchmark interest rate). This allows some money market funds to hold bonds with a longer maturity date to increase fund returns.

Fourth, the "Regulations" for the remaining maturity calculation method of the repurchase transaction is not clear, so that some funds can use the rolling operation of short-term repurchase to actually hold longer-term bonds, and then obtain higher returns.

Fifth, for some bonds with discontinuous transactions in the inter-bank market, the Regulations do not specify the method for determining their fair value, and some money market funds may choose different standards for valuation, or abnormal transactions at the time of announcement Come to artificially manipulate market prices. This will also cause confusion and large deviations in valuation.

From the perspective of overseas developments, DaleL. Domian and William Reichenstein (1998) made a detailed comparison of the returns of the US market money market funds from 1990 to 1994 and concluded the following main conclusions:

First, the difference in fund expenses is the decisive factor that causes the net income of different money market funds to differ;

Second, there are obvious economies of scale for money market funds that do not exceed US $ 3 billion, that is, under US $ 3 billion, the larger the scale, the lower the rate, and the higher the corresponding fund net income;

Third, money market funds with a size of more than 3 billion US dollars have basically no economies of scale;

Fourth, the returns of money market funds are quite sustainable.

The analysis shows that: money market funds in mature markets are only a tool for investors to manage positions and liquidity. It is not desirable and unsustainable to rely on leverage amplification and other high-risk operations to obtain risk-free returns that are much higher than the market. . The difference in returns shown by standardized money market fund operations is only due to the difference in their rates, and within a certain range, there are obvious economies of scale effects to motivate fund managers to expand the size of the fund, actively reduce the rate, and then increase Fund's net income.

With the improvement of the money market, the expansion of the overall size of money market funds, and the regulation of management regulations, the high yield of China's money market funds in the early stages of development is facing a trend of reduction and convergence. At the same time, after the standardized operation, Risks will also be reduced. It is believed that the annualized return after stabilization should be about 2.8%, and the money market fund is still a good low-risk, stable return liquidity management tool for investors.