Saturday, 24 October 2020

What is Money Market Mutual Funds and Uncovering The Hidden Cost of Mutual Funds

Money market mutual funds

Money market mutual funds are very conservative funds that invest exclusively, or primarily, in money markets. These guys are good at naming their funds right? If you aren’t familiar with money markets, they are essentially short term, very low risk investments that offer a great deal of security but don’t offer much in the way of return. They are ideal for investors who are looking for a small rate of return but only have a short period of time to invest and aren’t willing to take a large number of risks with their investment.

With the best money market mutual funds the obvious advantage to money market funds is that they are relatively low risk investments but conversely they aren’t extremely profitable funds. I should point out that just because money market funds are lower risk than other mutual funds, they can and sometimes do lose money. That said if you are looking for a safe way to invest in mutual funds you should definitely look toward the money market funds. You may even be able to find tax free money market mutual funds depending on what company you invest with.
What is Money Market Mutual Funds and Uncovering The Hidden Cost of Mutual Funds

With the securities that make up the fund being of the short term variety, the composition of money market funds changes very rapidly. With treasury bills and other securities maturing in a year or less, fund managers are forced to make a lot of movement in the fund to keep up. Because of this you should pay extra attention to the fund makeup as time goes on and money market mutual fund rates change, because the fund you bought in to initially may have a different makeup one or two years down the line.

One of the disadvantages of money market funds is that they are not FDIC insured like certificates of deposit (CD’s) and offer a very similar rate of return. To compensate your issuing company probably boasts a higher rate of return (albeit a small one) that will lure investors in.

As with all other sorts of mutual funds you should also make sure that you be sure that the fees and expenses that your mutual fund company charges you don’t outweigh the rate of return for your mutual funds, otherwise you should just keep your money in the bank.

Uncovering The Hidden Costs Of Mutual Funds

Think you know exactly how much your mutual funds are costing you each year? Think again. The unfortunate truth is that many funds come packed with hidden mutual fund fees, fees that most consumers have no idea exist.

But you want to be an educated consumer, right? If that’s the case, you’ll take the extra time to compare mutual fund fees and find the hidden costs of your funds. And depending on how high these costs are, you might even move your dollars to funds that don’t have quite so many of these secret fees.

Mutual funds come with many upfront fees, fees that are freely advertised by your fund company. These include management and redemption fees. There’s nothing too mysterious about these fees.

But then there are the fees that are rather mysterious, the brokerage fees. Simply put, these are fees that investors are charged when their fund managers buy and sell securities. These fees are not included in the expense ratio that funds distribute to their investors.

This seems a bit fishy, but it’s how mutual funds have long conducted business. It does make it difficult, though, for those consumers who like to shop around to make sure that they are investing their money in mutual funds that charge the least amount of operating and management fees.

As one of these conscientious investors, how do you determine these costs? How do you make sure that you’re not paying too much in fees to your mutual fund?

You’ll have to read a document called the Statement of Additional Information. All mutual funds are required to have one of these. It lists the transaction costs – all of them – that funds have charged in prior years. You might be surprised at how much some of these funds charge.

Finding this statement can take a bit of hunting. You can visit your mutual fund’s Web site and poke around. It might be listed there. But if you’d like to avoid the frustration of a possibly fruitless search, call your mutual fund’s customer service line. The person on the other end of the line should be able to tell you how to get a copy of your fund’s Statement of Additional Information.

No one likes to pay the operating fees that mutual funds charge. They’re a fact of life, though. What you don’t want, though, is to be paying hidden fees that you don’t even know about. These fees can add up to some hefty dollar amounts over the years.

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