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The basics
MMFs are mutual fund investment solutions for your cash that are designed to offer portfolio diversification and liquidity. MMFs have specific structures driven by regional regulation that invest in short-term debt securities.
Pros and cons
Investing in MMFs may allow you to participate in a more diverse portfolio than if you were to maintain cash with a single financial institution. However, they are not guaranteed or insured, and you could lose money by investing in a fund.
Investing in MMFs
You may want to use MMFs in addition to a larger diversified investment portfolio. Before you get started, think about your appetite for risk and also your liquidity needs for regular and upcoming expenses.
Regional regulation drives the different types of MMF structures available. However, in general, there are four different types of MMF strategy, each of which invests in different kinds of securities in addition to holding cash and cash equivalents.
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US domiciled |
European domiciled |
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Government MMFs invest at least 99.5% of assets in cash, government securities or repurchase agreements that are collateralized by government securities. |
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Short-term credit (Prime) MMFs can invest in government securities as described above but also securities issued by banks, corporations and other non-government entities. |
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Municipal MMFs buy municipal bonds and other debt securities. Municipal MMFs can potentially offer tax benefits to an investor, since the earnings are typically exempt from federal and sometimes state income tax. |
Standard MMFs are designed with a minimum investment horizon of three months and offer the opportunity of yield uplift by holding less liquidity, longer duration and slightly lower credit quality. |
Like other mutual funds, money market funds sell shares to investors who can then earn income from the portfolios. MMFs blend highly-rated, short-term securities with longer-dated securities (up to 397 days for most funds). Some MMFs seek to offer a constant net asset value (NAV) of 1.00 in the respective currency, while other types of MMFs float their NAV to the fourth decimal place. While yield is not a primary objective, funds seek to offer investors the potential for income that approximates the rate on other overnight or short-term investments.
Money market funds are required by the respective regional regulations to maintain sufficient liquidity to meet reasonably foreseeable redemptions. Generally, they must invest at least 10% of their portfolios in assets that can provide daily liquidity, and at least 30% of their portfolios in assets that can provide weekly liquidity, although there are exceptions.
To comply with these liquidity requirements, BlackRock must consider factors that could affect the strategy’s liquidity needs, including market opportunities and shareholder flows. Depending upon the volatility of its cash flows (particularly shareholder redemptions), this may require a fund to maintain greater liquidity than would be required by the daily and weekly minimum liquidity requirements under the respective regulations.
MMFs are a type of mutual fund, governed by regional regulations that stipulate guidelines that the funds must adhere to, including credit exposure requirements, liquidity requirements and duration constraints.
Certain MMFs are permitted to use accounting methods to transact at $1.00 per share.
MMF investments may be best suited to investors with short-term investment horizons seeking to protect their principal and maintain liquidity. Advantages of MMFs may include:
Liquidity: Investors may benefit from the pooled liquidity provided by a MMF which generally offers same or next day access to invested funds.
Preservation of capital: A combination of regional regulations plus other thresholds and best practices ensure MMFs only invest in short-dated, highly-rated securities with the aim of minimizing volatility.
Diversification: Stringent regulatory and rating agency rules demand maximum counterparty thresholds within MMFs. This ensures diverse exposure across a wide range of short-term debt issuers as opposed highly concentrated balances with a sole counterparty.
Operational efficiency: There are multiple ways of accessing MMFs, making it easy to manage subscriptions and redemptions. Shares remain invested until redeemed so you do not have to continually trade to maintain the exposure as you would with some traditional banking options such as deposits.
Yield: The active management of MMFs allow them to be dynamic and react to changes in markets. This can lead to the potential for enhanced yield.
Bank deposits typically aim to provide clients with a location to store their cash for a specified length of time with a specified rate of interest. MMFs traditionally seek to prioritize maintenance of capital and liquidity by investing in a broad range of high-credit quality assets across a wide range of issuers:
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Bank deposit |
Money market fund |
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Counterparty diversification |
Exposure to a single bank counterparty. |
Investment in multiple counterparties resulting in diversification. |
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Liquidity |
Potential penalties for accessing cash prior to maturity of term deposit. |
Most MMFs offer same or next-day liquidity with no lock up period. |
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Operational ease |
Multiple bi-lateral agreements with banks typically required to achieve laddered and diversified investment. Multiple individual instructions may be required to execute. |
Single transaction which can be executed in various ways. Instructions needed for subsequent redemptions and subscriptions. |
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Yield |
Rates driven by bank funding needs, which can be volatile. |
Active management of diversified money market securities allows for nimble positioning in changing market conditions. A MMF is not a guaranteed investment. Investment in MMFs can fluctuate and investors’ capital is at risk. |
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Fees |
Agreed between client and bank (often costs to break term agreements). |
Costs and fees embedded in product so yields are received net. Liquidity fees and redemption gates remain mechanisms that may be incorporated in times of uncertainty. |
The table above is intended to provide a general summary and is not exhaustive. A Money Market Fund (MMF) is not a guaranteed investment vehicle. An investment in MMFs is different from an investment in deposits; the principal invested in an MMF is capable of fluctuation and the risk of loss of the principal is to be borne by the investor. The MMF does not rely on external support for guaranteeing the liquidity of the MMF or stabilizing the NAV per share.
MMFs are investments and not bank deposits or savings accounts - there are no guarantees of principal or insurance from any of the regional governments.
Certain MMFs aim to maintain a constant net asset value (NAV) and trade at 1.00 per share in the respective currency, allowing all return to be received through income. Other types of funds have a floating NAV, meaning they transact at the market-based value of the securities in the portfolio, rounded to the fourth decimal place and allow return to be received through both capital and income.
MMFs are an efficient cash management solution but there are some important factors to consider including how you can use them and which MMF to choose. Some of the key considerations are:
- What are your specific liquidity requirements?
- Is it possible to segment these requirements into different ‘buckets’ to allow for optimized strategies for each?
- What’s the investment horizon for your overall strategy or each of the buckets?
- Are there sensitivities to market pricing volatility?
- Are there thresholds around return expectations or loss tolerance?
- Are there operational preferences or requirements e.g. trading or reporting?
BlackRock’s strategy seeks to deliver results for our clients throughout market volatility, interest cycles, and credit events – with a specific focus on preservation of principal, liquidity, and yield. We evaluate actual and projected economic and financial conditions in the marketplace, while reviewing our daily stress test outputs to craft the duration, liquidity targets, and credit exposures for our strategies.
We focus on liquidity while making investment decisions based on:
• Security selection and credit analysis
• Duration and yield curve positioning
• Sector positioning
This approach has been particularly effective during periods of high market volatility, uncertainty, and low interest rates – which have included challenges related to the banking sector, geopolitical issues, and debt ceiling events, among others. Of course, past performance is not indicative of future results.
A money market fund (MMF) is a type of mutual fund that invests in short-term debt, primarily money market securities.
Like other types of mutual funds, MMFs create a portfolio of securities and sell shares to investors who can potentially earn returns in the form of income and capital gains.
Similar to a savings account, money market funds can provide daily liquidity, but they can offer the current market rate of interest – while savings accounts are subject to the given bank’s offered interest rate. Additionally, money market funds can offer the potential for greater investment diversification since the money is pooled to buy securities. Note that money market funds are not insured or guaranteed and may lose value.
Consult a financial professional for advice on whether investing in a money market fund might be appropriate for you.
Rates may differ based on fund type, allocation, and market conditions.
The duration of your investment depends on your personal circumstances. Money market funds are considered a short-term investment strategy and provide daily liquidity for ease of access.
There are several basic types of money market funds, each of which invests in different kinds of securities in addition to holding cash and cash equivalents.
We offer a broad range of liquidity strategies across currencies, including sovereign strategies and prime money market strategies, as well as the flexibility of bespoke, segregated mandates for large investors.
You should consider the investment objectives, risks and expenses of the Fund carefully before investing. The Fund’s prospectus and, if available summary prospectus, contain this and other information about the Fund and are available by calling our Client Service Center at 800-441-7450 or by visiting www.blackrock.com/cash. Please read the prospectus carefully before investing.
Disclosures related to prime and municipal funds: You could lose money by investing in the Fund. Because the share price of the Fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. The Fund may impose a fee upon sale of your shares. The Fund generally must impose a fee when net sales of Fund shares exceed certain levels. An investment in the Fund is not a bank account and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor is not required to reimburse the Fund for losses, and you should not expect that the sponsor will provide financial support to the Fund at any time, including during periods of market stress.
Disclosures related to Government MMFs: You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not a bank account and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor is not required to reimburse the Fund for losses, and you should not expect that the sponsor will provide financial support to the Fund at any time, including during periods of market stress.
Distributed by BlackRock Investments LLC, member FINRA.
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