Institutional Vs. Non-Institutional Money Market

Institutional money market funds cater to the 800-pound gorillas of the financial world -- institutional investors. These behemoths of investment include hedge funds, pension funds, insurance companies and investment advisers. Institutional money market funds set high initial investment amounts, such as $5 million. To compete for these large investments, fund companies charge low fees. For example, at the time of publication, one institutional fund charged an annual fee of 0.09 percent of the amount invested. Wealthy individuals can invest in institutional money market funds if they can ante up the minimum investment.

The non-institutional, or “retail,” money market funds are for the average investor. Minimum investments vary by fund company. For example, at the time of publication, one non-institutional fund required a $3,000 initial deposit, while another required $2,500. Non-institutional money market funds have higher fees than do their institutional brethren. The same two retail money market funds were charging 0.16 percent and 0.38 percent per year, respectively.

Many mutual fund companies offer a non-institutional intermediate class of money market funds that requires minimum investment amounts between those of retail and institutional funds. As of the date of publication, one fund company offered a money market account that required a $25,000 initial investment, while another had a $100,000 minimum investment. Confusingly, in one case the intermediate-class money market fund was charging 0.04 percent more per year than its retail money market cousin.

At the time of publication, money market funds were yielding about 0.01 percent per year after expenses. That works out to a penny of annual income for each $100 invested. With annual inflation of 1.0 percent as of October 2013, money market funds were losing 0.99 percent of buying power per year. While money market funds can be money losers after inflation, they do provide a convenient rest stop for money between other investments. In addition, you can sweep mutual fund dividend and interest income into a money market fund if you don’t want to reinvest the income in additional shares.