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Show INVESTING IN MONEY MARKET FUNDS Taxable Ratal Equivalant to Joint Return Faderal Tax Tax-Free Yitld Taxabla Inooma Bracket of 7 Percent $24,601-29,900 32 10.3 $29,901-35,200 37 11.1 $35,201-45,800 43 12.2 $45,801-60,000 49 13.7 $60,001-85,600 54 15.2 $85,601-109,400 59 17.1 $109,401-162,400 64 19.4 $162,401-215,400 68 21.9 $215,401 & over 70 23.3 Ratei applicable to exceai over z rpecified dollar amount. E Short-term. Convenient. High-yielding. These are the common investment requirements require-ments that have drawn hundreds hun-dreds of thousands of investors inves-tors to mutual funds which hold money market assets. The surge began in 1978 when total money market assets more than doubled from the previous year. Meeting the demand, almost 100 such funds exist today. Money market mutual funds trade mainly in short-term short-term debt obligations such as commercial paper, certificates certif-icates of deposit, bankers acceptances and treasury bills. Easily and quickly redeemable, re-deemable, they have provided pro-vided some of the best investment in-vestment rates of return in the past few years. Recently, Recent-ly, yields have been in the vicinity of 14 percent. As attractive as these funds are, however, they do nothing to protect investors from paying federal income taxes. The higher the tax bracket, of course, the less net after-tax income received re-ceived from the money market mar-ket mutual fund. For example, a couple with a taxable income of $30,000 and filing a joint income tax return fall into the 37 percent federal tax bracket. They have to get an 11.1 percent return on a taxable investment, such as a money market mutual fund, to earn 7 percent after af-ter taxes. The table above shows that as they move into higher high-er brackets, their investment return must also increase to maintain the same after-tax yield. An alternative for some of their assets might be a mutual fund that invests primarily pri-marily in short-term municipal mu-nicipal securities. Although yields on these funds are lower than those of regular fully taxable funds, the dividends div-idends paid on municipal security se-curity funds are substantially free from federal income taxes. Depending on an investor's, in-vestor's, tax bracket and yields on alternative investments, invest-ments, a lower yielding but substantially tax-free fund could mean a higher net return. Although state and local taxes still must be paid, such a ' fund offers its investors in-vestors income largely exempt ex-empt from federal taxes. Additionally, as in regular money market mutual funds, investors are able to participate partici-pate in a more diversified portfolio than would ordinarily ordi-narily be possible for individual individ-ual investors and a more stable one than would be possible with longer-term securities. Also because such a fund is professionally managed, it frees investors from making day-to-day investment decisions. deci-sions. Certain other benefits often associated with money mon-ey market mutual funds may be provided in a fund largely exempt from federal feder-al income taxes. For example, exam-ple, in certain funds dividends divi-dends may be declared daily and may be automatically reinvested. Also, typically, shares can be liquidated easily and quickly. Both regular money market mar-ket and municipal security mutual funds offer investors diversification and convenience. conven-ience. However, whether it's more profitable to participate partici-pate in only one type of fund or both will depend on an investor's income tax bracket and the funds' rates of return. Because of these and other variables, an experienced ex-perienced investment professional profes-sional should be consulted in determining each individual's individ-ual's best investment strategy, strate-gy, and a prospectus should always be carefully read. Of the many major brokerage bro-kerage firms that offer mutual mu-tual funds, E.F. Hutton sponsors two. For more information, in-formation, you can contact any local Hutton office. |