Many investors may believe there is no good reason to shop around for money market mutual funds. That's because they tend to view them as generic commodities, even though all money market funds are not created equally. Money funds can vary widely — not only in the yields they offer, but also the securities they invest in, the expenses they charge, their minimum balance requirements and many other features and services. In an attempt to dispel seven commonly-held myths about money market mutual funds, Charles Schwab & Co., Inc. provides the following "realities" to help investors choose the option that best suits their investment needs.

Myth #1: When it comes to a money market fund, it's not important who manages it.

Reality: There are tens of thousands of money market securities to choose from and, as with any other type of investment, selection is key and experience counts. Because there are very complex regulations surrounding money market mutual funds, investors should look for a large, financially-secure provider with a successful track record and experience in managing money market funds, and consider avoiding smaller institutions with little or no experience or resources.

Myth #2: Fees don't matter.

Reality: Expenses and fees are one of the most important factors in determining a money market fund's performance, and investors should consider a money market mutual fund's expenses carefully before making a selection. However, it probably doesn't pay to be a "penny pincher." A $10,000 investment in a money market mutual fund that yields 10 basis points (0.10%) more in yield would add only $10 over the course of a year. Furthermore, it's probably wise to avoid funds with no or abnormally low expenses. Money market funds often waive at least some of their expenses for a period of time to bolster their yields and gather more assets. But these waivers may be temporary and, if so, eventually the fees could start to climb.

Myth #3: The highest yielding money market fund is always the best choice.

Reality: Since the overall goal of investing in a money market fund is preservation of capital, investors need to look for funds that don't take unreasonable risks. A money market fund that boasts a yield that is much higher than its competitors may be "stretching for yield" by investing some of its assets in securities that are not high quality. These securities typically offer higher yields than first-tier securities in order to compensate for their higher credit risk. Alternatively, a fund's higher-than-average yield may indicate that it holds a larger number of securities that while short-term are on the longer end of the short term spectrum. The longer-term securities generally pay higher yields to compensate for greater interest rate-related price volatility. That said, neither these longer-term securities or second-tier securities are "bad" in their own right. The point is that before choosing the highest-yielding money market fund, investors should investigate whether the fund's holdings exposed you to more risk than you are comfortable with.

Myth #4: When it comes to money markets, one size fits all.

Reality: Many fund sponsors offer several money funds to suit the needs of different investors, depending mainly on how investors want to access their money and how large their minimum cash balance must be.

Myth #5: You can't go wrong with money market funds that invest in U.S. Government securities.

Reality: For some investors, investing in a money market fund that maintains a portfolio of U.S. Government securities may be appropriate. These Funds offer money market returns, but with an added margin of safety because the U.S. Government — or one of its agencies or government-sponsored enterprises — issues or guarantees the underlying security. However, not all U.S. Government securities are backed by the full faith and credit of the U.S. Government, and such securities may fluctuate in market value before maturity. The money fund shares are not guaranteed by the government.

Myth #6: Money markets funds are only a holding place for cash when the stock market is in trouble.

Reality: It's true that money market funds can offer a convenient temporary holding place for investors who are nervous about the stock or bond markets. But there are many other reasons why money market funds are useful. For one, money market funds can be an essential part of any asset allocation program that includes stocks, bonds and cash equivalents. Second, money market funds may be appropriate for those who are trying to save for a short-term goal — such as accumulating a down payment for a home — because they generally offer more attractive yields than bank savings accounts.

Myth #7: For convenience sake, it's easier to have money market funds at a local bank, savings and loan or credit union.

Reality: By keeping money market funds at a local bank, savings and loan or credit union, investors actually may deprive themselves of major conveniences: 24-hour telephone access to their investment accounts; consolidated investment account statements, quick transfers of assets among stocks, bonds and money market funds; and other services.

Before investing in any mutual fund, obtain a copy of the Fund's prospectus which contains more complete information on a Fund's management, fees and expenses. Please read it carefully before investing.

These perspectives are provided as background information and commentary from professionals in the mutual fund industry and other financial communities. They are not intended to be nor should they be taken as investment advice.