LivemintUSA All the news in one place
Related Articles
Best Money market funds are a type of mutual fund that invests in short-term debt securities, such as Treasury bills, commercial paper, and certificates of deposit. They offer a safe place to park your cash while earning interest, and they’re a good option for short-term savings goals, like an emergency fund or down payment on a house.
Many investors have reviewed their portfolio strategy in light of the recent volatility in the bond market, particularly with regard to fixed-income assets.
Damage is evident in returns on the well-liked iShares Core U.S. Aggregate Bond ETF (ticker: AGG), with its price dropping 2.3% year to date as of Oct. 26. Longer-duration funds felt even more pressure, with the iShares 20+ Year Treasury Bond ETF (TLT) sliding nearly 14% year to date.
The bond market seems to have adjusted to the possibility of a “higher for longer” interest rate environment in the wake of the Federal Reserve’s monetary policy committee meeting in September and other recent comments from central bank officials.
The benchmark 10-year Treasury yield quickly rose to 5% as a result of market players’ appropriate reaction, which was prompted by the continuous volatility stemming from the Israel-Hamas conflict.
In view of this, it is inevitable that some investors may wonder why they should take on excessive duration and credit risk in exchange for yield. With the surge in short-term rates, less risky options like best money market funds are now providing yields in excess of 5%.
The head of Vanguard’s taxable best money market funds and principal, Naïfs Smith, thinks money market mutual funds are excellent investments for conservative, short-term savers. “This is because their typical strategy entails making investments in highly liquid securities with the intention of safeguarding your capital and generating income at current market prices.”
These funds can serve as a safe haven, offering competitive returns while the overall financial environment becomes clearer. Their portfolios usually consist of high-quality, short-term assets like Treasury bills, certificates of deposit, repurchase agreements, and commercial paper, which helps them maintain a stable net asset value, or NAV per share, of $1.
“According to Sophoan Prak, “using best money market funds is a great way to save for immediate needs, like a down payment on a car or to increase your emergency fund,” says a licensed financial planner and financial advisor at Vanguard. “Generally speaking, a best money market fund might be a wise choice for your investment if you have a bill coming up in the upcoming year.”
Best Money Market Funds List
01 North Capital Treasury Best Money Market Funds (NCGXX)
When choosing a best money market fund, investors should prioritize evaluating fees. Excessive fees have the potential to significantly reduce performance and directly reduce the net returns that funds pay out. By screening for low fees, investors can easily address a common risk that contributes to long-term underperformance. There are hardly many best money market funds that compare to NCGXX in terms of cheap costs.
Currently, the fund’s manager has implemented an indefinite fee waiver to bring its annual expense ratio to 0%, making it virtually free to invest in. NCGXX is a government best money market fund that primarily invests in Treasury bills and repurchase agreements that are secured by cash or government-issued securities. Currently, investors can expect a 5.4% seven-day SEC yield.
02 Fidelity Best Money Market Funds (SPRXX)
SPRXX does not have a minimum initial investment requirement and does not impose transaction fees, making it simple for investors to purchase it on the Fidelity brokerage platform. SPRXX is a prime best money market fund that, in addition to the typical Treasury’s certificates of deposit and repurchase agreements, can also invest in corporate securities like commercial paper to try and boost its yield.
SPRXX’s primary advantages are its extensive track record and substantial assets under management (AUM). With a share class AUM of $9.5 billion as of today and an inception date of January 23, 1989, investors can be sure that this fund is well financed and managed. However, the high expense ratio of 0.42% may be off-putting to cost-conscious investors. SPRXX pays a 5.1% seven-day SEC yield.
03: Fidelity Government Best Money Market Funds (SPAXX)
SPRXX is fairly safe and has withstood many market downturns, but its holding of commercial paper does add a higher degree of credit risk. Those who want to reduce the likelihood of a default may choose a government best money market fund such as SPAXX. This fund, in contrast to SPRXX, solely invests in Treasury bonds issued by the government, floating-rate securities, and repurchase agreements.
The drawback of this is a 5% drop in the seven-day SEC yield. Historically, SPAXX has also underperformed SPRXX over the past 10 years, returning an annualized 0.9% versus 1% as of Sept. 30. However, investors that are risk-conservative and value safety above all else with their money could be willing to give up a little yield in return for better credit quality.. SPAXX also charges a 0.42% expense ratio.
04 Schwab Value Advantage Best Money Funds—Investor Shares (SWVXX)
Schwab’s competitor to SPRXX is SWVXX. This fund undercuts Fidelity’s main best money market funds offering with a lower 0.34% expense ratio and also features no minimum required investments. In addition to the typical Treasury bills and certificates of deposit, SWVXX, being a premier best money market fund, can also hold commercial paper, time deposits, bank notes, and certificates of deposit. repurchase agreements.
From its inception date of April 30, 1992, to September 30, 2023, SWVXX has returned an annualized 2.4% with all distributions reinvested. Remember that this was done during a time when interest rates were low, even though it might appear tiny. With rates much higher at present, the fund is now paying out an attractive 5.2% seven-day SEC yield with very low risk.
05 Prime Best Money Market Funds of JPMorgan (VMVXX)
Another money market fund that has attracted a high amount of investor capital is VMVXX. Since its inception on Nov. 15, 1993, the AUM of this fund has increased to around $77.4 billion. VMVXX is a prime money market fund that invests in a variety of securities, including certificates of deposit, floating-rate notes, repurchase agreements, Treasury bills, and asset-backed securities.
Nevertheless, there are a few drawbacks with this fund that make it less appealing than the earlier choices. For instance, there is a minimum initial investment requirement of $1,000, and subsequent investments have to be at least $50. The fund also charges a fairly high 0.5% expense ratio, making it more expensive than even SPRXX. At present, investors can expect a 5.3% seven-day SEC yield.
06 Money Market Fund Vanguard Federal (VMFXX)
NCGXX may be offering a 0% expense ratio, but keep in mind that is in place due to a waiver. Even though the fund manager anticipates it will go on forever, there’s no assurance. Investors looking for another time-tested money market fund with low fees may like VMFXX, which currently charges a 0.11% expense ratio and pays a 5.3% seven-day SEC yield.
VMFXX is a government money market fund that currently has 155 holdings with an average maturity of only 20 days. These holdings include repurchase agreements, Treasury liabilities, and Treasury notes. With around $265 billion in AUM, this fund is extremely popular and well capitalized. However, keep in mind that to buy VMFXX, there is a $3,000 minimum investment requirement.
07 Vanguard Municipal Best Money Market Funds (VMSXX)
Best Money market funds, like other investments, pay out interest that is taxable if they are not held in a Roth IRA or another tax-advantaged account. This can have a large drag on returns for investors in high income tax levels. Investors may want to look into municipal best money market funds such as VMSXX, which may provide better tax efficiency, in order to lessen this.
“One of the benefits of investing in VMSXX is receiving federally tax-exempt interest income,” Prak elaborates. This is true because the fund’s underlying assets are not subject to federal personal income taxes. Otherwise, the fund acts as a normal money market fund does, maintaining a stable NAV per share of $1. VMSXX currently pays a 4.1% seven-day SEC yield and charges a 0.15% expense ratio.
