Institutional money funds are designed primarily for institutional investors.  Institutional money market funds that are used by businesses, pension funds, state and local governments, and a variety of other large investors.  Small, midsize, and even some larger corporations also use money market funds for cash management purposes.  Small and medium-sized bank trust departments which use money market funds as a means of earning a market rate on the short-term reserves of their personal and employee benefit trust accounts.  Individuals may sometimes invest through an institution, such as a bank trust department or a brokerage firm. 

Minimum initial investments are usually higher than retail funds, and the majority do not offer check writing.  Institutional money funds, in general, charge lower fees, so these funds often have higher net returns than the retail funds.  These funds offer an array of services specially designed to meet the needs of institutions, such as electronic hookups between the institution and the fund and sub accounting services to facilitate recordkeeping of a bank’s trust account. Institutional money funds are high minimum investment, low expense share classes which are marketed to corporations, governments, or fiduciaries.  They may be set up so that money is swept to them overnight from a company’s main operating accounts.  Large national chains often have many accounts with banks all across the country, but electronically pull a majority of funds on deposit with them to a concentrated money market fund.

Despite the facts that lower interest rates and yields in money market investments have provoked some individual investors to pull out cash from money market mutual funds, the same interest rate movements have led some corporations, municipalities and other institutional investors to invest considerable sums of money ion money market mutual funds.  Assets in money funds from individual investors have been in decline as individual investors have reallocated their investment and savings dollars to bond funds or bank savings and bank CD accounts in search of higher yields.  But assets in institutional money funds have risen during the same time period.  The widespread use of institutional money market funds by corporations and municipalities as a cash management tool has been a relatively recent development.

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