Understanding mutual funds

I have read several of your columns on mutual funds and particularly the money-market mutual funds as an alternative to savins accounts. I feel you lure investors by citing check-writing advantages and only saying that a $500 minimum is required for each check. The distance of the bank could work to a disadvantage on withdrawing funds. -- M.L.

Money-market mutual funds are no-load funds and may use funds that might otherwise be invested through a broker. Since they are no-load, a broker is not in the circuit to explain the details, including, the $500 minimum for checks. However, each application is accompanied by a prospectus that provides such details, along with far more information about the objectives and operations of the fund. Any person about to invest cash in a money market fund should take the time to read the prospectus to avoid later surprises. As for the distance of a bank on withdrawing funds, the float benefits the investor rather than the fund in this way. When an investor draws a check on his or her account in the money-market fund, the cash continues to earn until the check completes its rounds and is finally presented for payment and withdrawal from the investor's account. That time in transit (float) could mean six to eight days of extra interest. While check-writing is noted as a privilege, a money-market fund should never be considered as a checking account for payment of many small bills.