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== The Money Market Fund ==
 
== The Money Market Fund ==
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Money Market funds are mutual funds that invest in money market instruments .By design, they are meant to maintain stable net asset valuations of 1.00 per share and provide investors with interest dividends. Money funds provide convenience, diversification of risk, and competitive short term yields (although, as we will see, the costs of investment are a critical factor in accessing the money market through funds). Money funds are characterized by the underlying investments comprising the portfolio. This specialization allows for funds to be differentiated by risk and tax characteristics. Money funds include:
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Money Market funds are mutual funds that invest in money market instruments. By design, they are meant to maintain stable net asset valuations of 1.00 per share and provide investors with interest dividends. Money funds provide convenience, diversification of risk, and competitive short term yields (although, as we will see, the costs of investment are a critical factor in accessing the money market through funds). Money funds are characterized by the underlying investments comprising the portfolio. This specialization allows for funds to be differentiated by risk and tax characteristics. Money funds include:
    
* '''General Money Funds''': These funds invest in a large gamut of money fund instruments: treasury bills, CD's, Yankee CD's, Eurodollar CD's, Commercial Paper, and Banker's Acceptances. These funds are usually heavily weighted towards the non-treasury instruments. Since these instruments are exposed to credit risks, they provide higher interest coupons than treasuries (this excess interest can be called the default risk premium). The non-treasury component of a General Money Market Fund is taxable income for both federal and state jurisdictions.
 
* '''General Money Funds''': These funds invest in a large gamut of money fund instruments: treasury bills, CD's, Yankee CD's, Eurodollar CD's, Commercial Paper, and Banker's Acceptances. These funds are usually heavily weighted towards the non-treasury instruments. Since these instruments are exposed to credit risks, they provide higher interest coupons than treasuries (this excess interest can be called the default risk premium). The non-treasury component of a General Money Market Fund is taxable income for both federal and state jurisdictions.
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* '''Tax Exempt Funds''': These funds invest in municipal money market instruments. The interest is generally exempt from federal taxation (although some interest may be subject to the alternative minimum tax.) State Specific Tax Exempt Funds invest in municipal securities of an individual state and thus provide federal, state, and sometimes local tax exempt interest for state residents. Tax exempt funds are subject to credit risk as well as the risk of tax law change to their exemption status.
 
* '''Tax Exempt Funds''': These funds invest in municipal money market instruments. The interest is generally exempt from federal taxation (although some interest may be subject to the alternative minimum tax.) State Specific Tax Exempt Funds invest in municipal securities of an individual state and thus provide federal, state, and sometimes local tax exempt interest for state residents. Tax exempt funds are subject to credit risk as well as the risk of tax law change to their exemption status.
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=== Breaking the Buck ===
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While money-market funds are low risk, they are not zero-risk.  In the event that some of the underlying investments default, the fund may not be able to maintain a net asset value of $1.00/share; this failure is colloquially known as ''breaking the buck''. 
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As of November, 2009, there have been only a few cases when this has actually happened.  Most notably, two money-market funds of The Reserve ''broke the buck'' in September, 2008, after Lehman went bankrupt.
    
== Money Fund Regulation ==
 
== Money Fund Regulation ==
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