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Key Fiduciary Decisions Loom For Retirement Plan Advisers Using Money Market Funds
" As the name implies, institutional fund shares are available only to businesses, defined benefit plans, endowments and other corporate investors, not individuals."
The article has it backward. Institutional fund shares are available to businesses, etc. as well as individuals. It is retail funds that limit availabity - to natural persons (not institutions).
This seems to make the advice wrong: "If by chance a current MMF option is converted to an institutional MMF, it will no longer be available to participants or their beneficiaries and must be replaced."
There reasons to replace an institutional MMF as an investment option, but lack of access is not one of them. A floating NAV makes institutional prime MMFs somewhat undesirable as transaction funds (but not necessarily undesirable as investment funds, which are like ultra-ultra-short bond funds).
Fidelity appears to welcome your investment in FDPXX. However, since the fund requires a $1M investment, I was not able to get past the "insufficient funds" message on a test buy. I'm working on it
The 7 day yield is the actual income (excluding cap gains) earned on an investment in a MMF over a period of seven days (i.e. after expenses are subtracted), multiplied by 365/7. So it is more or less a simple interest rate calculated over a year - what a bank would call APR.
Not quite a true annualized figure, because an actual investment would have compounded yield - what a bank would call APY. The second equation in the form gives this value; it defines effective yield.
Currently, Fidelity's retail MMF FZDXX ($10K min in IRA) is yielding 0.45%, while the Fidelity institutional MMF listed by iMoneyNet, FIDXX, is yielding 0.44%.
These figures are as of June 30th, 2016 according to the linked pages. Price stability (no floating NAV) and higher yield. Sometimes the retail investor comes out better.
(Note that this is happening because Fidelity is waiving more of the retail fund's fees than the institutional fund's fees. Without waivers, the institutional fund would be ahead, 0.41% vs. 0.37%.)
@MFO Members: Using BlackRock Cash Funds Institutional 7-Day yield 0.53 One has $1,000,000 invested for 30 days at a 7-day SEC yield of 0.53 then: (0.53 × $1,000,000 ) / 365 ~= $14.52 per day.
I believe the 7 day yield is neither APR nor APY, but a hybrid - the compounded yield over a seven day period, extrapolated as simple interest over a year. Not that it makes any difference at these low rates (as you'll see below), but here's the complete calculation:
0.53% 7 day SEC yield equates to 7/366 * 0.53% ~= 0.010137% Remember that this is an election year (how could one forget?), so 366 days.
That 0.10137% is a the total return over a week, i.e. a compounded daily return. So the daily rate is (1 + 0.010137%) ^ (1/7) - 1 ~= 0.001448%. On $1M, that yields $14.48 per day.
The deviation from Ted's figure is virtually all due to the leap year. Redoing the calculation above with a 365 day year produces $14.519, vs. Ted's $14.521. A daily difference of just two mill.
All this is academic, not because I don't seem to have $1M in pocket change, nor because the minimum investment is $100M, but because BGIXX (Black Rock Cash Funds Institutional, Institutional Class) is closed. See summary prospectus for this share class or its SAI.
Comments
The article has it backward. Institutional fund shares are available to businesses, etc. as well as individuals. It is retail funds that limit availabity - to natural persons (not institutions).
This seems to make the advice wrong: "If by chance a current MMF option is converted to an institutional MMF, it will no longer be available to participants or their beneficiaries and must be replaced."
There reasons to replace an institutional MMF as an investment option, but lack of access is not one of them. A floating NAV makes institutional prime MMFs somewhat undesirable as transaction funds (but not necessarily undesirable as investment funds, which are like ultra-ultra-short bond funds).
Fidelity appears to welcome your investment in FDPXX. However, since the fund requires a $1M investment, I was not able to get past the "insufficient funds" message on a test buy. I'm working on it
Regards,
Ted
Top Institutional Prime Money Market Funds:
http://www.imoneynet.com/institutional-money-funds/
https://www.sec.gov/about/forms/formn-1a.pdf
The 7 day yield is the actual income (excluding cap gains) earned on an investment in a MMF over a period of seven days (i.e. after expenses are subtracted), multiplied by 365/7. So it is more or less a simple interest rate calculated over a year - what a bank would call APR.
Not quite a true annualized figure, because an actual investment would have compounded yield - what a bank would call APY. The second equation in the form gives this value; it defines effective yield.
These figures are as of June 30th, 2016 according to the linked pages. Price stability (no floating NAV) and higher yield. Sometimes the retail investor comes out better.
(Note that this is happening because Fidelity is waiving more of the retail fund's fees than the institutional fund's fees. Without waivers, the institutional fund would be ahead, 0.41% vs. 0.37%.)
One has $1,000,000 invested for 30 days at a 7-day SEC yield of 0.53 then:
(0.53 × $1,000,000 ) / 365 ~= $14.52 per day.
Thanks- OJ
0.53% 7 day SEC yield equates to 7/366 * 0.53% ~= 0.010137%
Remember that this is an election year (how could one forget?), so 366 days.
That 0.10137% is a the total return over a week, i.e. a compounded daily return.
So the daily rate is (1 + 0.010137%) ^ (1/7) - 1 ~= 0.001448%.
On $1M, that yields $14.48 per day.
The deviation from Ted's figure is virtually all due to the leap year. Redoing the calculation above with a 365 day year produces $14.519, vs. Ted's $14.521. A daily difference of just two mill.
All this is academic, not because I don't seem to have $1M in pocket change, nor because the minimum investment is $100M, but because BGIXX (Black Rock Cash Funds Institutional, Institutional Class) is closed. See summary prospectus for this share class or its SAI.