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MONEY MARKET FUNDS OFFER HIGH YIELDS, LIQUIDITY, SAFETY

Take a long look at money market mutual funds.

The average yield, or the return on your investment, from a money market mutual fund is linked directly to interest rates. Although yields have fallen somewhat in recent weeks, they are still close to double digits.Money market mutual funds also offer liquidity, or easy access to your money; many offer a check-writing feature.

The funds are safe. They pool investors' cash, then lend it to the government, banks and other big companies. Because these loans are for very short periods, of-ten a month or less, and because the borrowers are highly creditworthy, the risk of loss to the funds is minimal.

With money market funds, unlike stock and bond mutual funds, the only major variable for the investor is the yield, which funds distribute as dividends; an investor's principal is widely considered to be safe.

Funds are also regulated by state and federal laws and offer diverse portfolios and professional management, said Betty Hart, spokeswoman for the Investment Company Institute of Washington, D.C., a national trade association for the mutual fund industry.

The popularity of these funds is no secret. Since early January, total assets in taxable money market mutual funds has risen by more than $21 billion, or 7.5 percent, to $303 billion at the end of April, according to Investment Company Institute figures.

For 15 consecutive weeks through mid-April, "We hit new highs" in total asset size, said Hart. (The increases in the period represent new investments as well as any reinvested dividends.)

Merrill Lynch & Co. Inc. illustrates the point. Last month, it announced that its Cash Management Account Money Fund became the largest mutual fund ever, with $23.5 billion in assets. The former record was set in August 1982 by Merrill Lynch's $23.4 billion Ready Assets Trust.

Investors are pumping cash into money market mutual funds because of high yields.

These aren't the heydays of the early 1980s, when double-digit returns were routine. In 1981, for example, yields averaged 16.8 percent, according to the Donoghue Organization of Holliston, Mass., which does investment research.

But with rates on the rise of late, investors are following. Between early January and recent weeks, average compounded yields on taxable money market mutual funds have risen from about 8.71 percent to 9.57 percent, according to Donoghue's figures.

Certain funds are even higher. Recently, the 7-day compounded yield on the Spartan Fund, Fidelity Investments' newest money market mutual fund, was 10.94 percent. "Many people consider that a fair return in the stock market," said Neal Litvack, vice president of marketing at Fidelity.

Money market mutual funds have gained momentum ever since the stock market plunge in October 1987, Lit-vack said because "money market funds have been perceived as a safe haven."

They also appear attractive because they generally do not carry sales charges. The average annual management fee and expenses total about 0.5 percent of a fund's assets. And such a charge is to the overall fund, not to individual accounts, Hart said.

Investment choices are plentiful. The number of money market mutual funds quadrupled, from 96 in 1980 to 389 in 1987, according to the Investment Company Institute. Today, there are 468 taxable money market mutual funds, of which 233 are general purpose funds, 140 are for institutional investors and 95 are sold through brokers or dealers.

There also are 203 tax-free money market mutual funds. Their yields have dipped somewhat lately, in part because of a lackluster market for short-term municipal bonds, Hart said.

All of these are open-ended funds, creating new shares on demand. Closed-end funds have limited numbers of shares and the shares are traded on stock exchanges.

Many companies offer groups, or families, of funds, an additional lure to investors. Among its lineup of mutual funds, Fidelity offers five taxable money market mutual funds and six tax-free funds, Litvack said. Its Spartan fund, opened at the end of January, recently topped the $1 billion mark in asset size.

Investors use the funds for various reasons.

Some rely on the funds "as a parking place between financial transactions," said Hart. Others use a fund as an instrument for cash management, taking advantage of high yields until it's time to pay the mortgage or another big bill.