Tax Free Money Market Funds
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Tax free money market funds are actually an investment on cash equivalent items, which is not secured or insured by government agency or Federal deposit insurance corporation. Tax free money market funds normally have lower yields in comparison to other regular types of money market funds.
Features of tax free money market funds
- Tax free money market funds yields are comparatively lower than other regular money market funds.
- These tax free money market funds provide the same liquidity as that of taxable money market funds.
- The risk factors are higher in tax free money market funds than its taxable counterparts.
Difference between taxable and tax free money market funds
There is a major difference between taxable and tax free money market funds, which is that the returns on the tax free money market funds are less than the returns on the taxable money market funds, although the margin is too close. As for example, if an one year average of four taxable and non taxable funds are taken into consideration, then one can easily find out the difference between them.
Advice by economists
- The yields are lower for tax free money market funds in comparison to other regular money market funds, nevertheless, investors should invest in tax free money market funds. But before deciding for any of the two, one should gather all related information regarding tax rates. Federal tax law normally offers six basic tax rates types( from 10% to 35%).
- Investors should take some factors into account before they are going to select any of the money market funds. The factors include expenses, risks, objectives, and charges.
Working principle of tax free money market funds
Tax free money market funds securities are primarily valuated at their cost and the valuation will be measured irrespective of influence of interest rates on the market value. Tax free money market funds generally announce the distribution from the the net income on daily basis and are normally paid on the last business day of the month.
