Chapter Six How to Select a Money Market Fund A Penny Saved

“A penny saved is a penny earned,” said Benjamin Franklin two centuries ago. What he meant, I think, is that any amount of money, no matter how small, is worth saving. And there is no better place in the mutual fund industry to achieve a modest but meaningful improvement in return—without extra risk—than by the careful selection of a money market mutual fund from among the 976 such funds available at the end of 1992. If Ben Franklin were alive, he would surely approve of not only the simplicity of the money market fund investment concept but the ease of saving a few more pennies through a wise fund selection.

The first money market funds came into existence in 1971 with a basic concept: The fund would hold only short-term financial instruments such as U.S. Treasury bills, bank certificates of deposit (CDs), and commercial paper (the short-term IOUs of large U.S. corporations). The concept was also creative: The fund would have a stated (but not guaranteed) net asset value of $1.00 per share, accrue dividends on a daily basis, and offer checkwriting privileges, all at a time when interest rates on bank savings accounts were fixed at levels well below those that money market funds could obtain. The money market fund opened the door for the average investor to enjoy the higher short-term rates of return previously available only to large institutions and wealthy individuals.

Acceptance among investors of this new class ...

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