J.P. Morgan & Co. launched its third tax-aware mutual fund this week.
The portfolio is Morgan's first tax-efficient fund to invest in fixed- income securities.
The J.P. Morgan Institutional Enhanced Income Fund has a $5 million minimum investment and is to be followed by a similar retail fund with a $2,500 minimum, said Richard W. Oswald, the Morgan vice president who manages the fund.
The fund, which had $50 million invested by Tuesday, keeps half its assets in tax-exempt bonds issued by states and the federal government. The enhanced-income strategy has been used at Morgan for institutional and wealthy clients in separate accounts since 1969.
The assets invested are usually in a holding pattern. The money could represent the proceeds of a property sale or cash reserves building up on a company's books because of a seasonal business cycle. In both instances, investors need the money back in a few months, but want an alternative to a money market mutual fund.
"You want to have a principal preservation strategy, but you want better than a money market fund." Mr. Oswald said.
"It could go up the yield curve for a little more return," he said. The fund aims to provide returns, after taxes and fees, of 30 to 50 basis points higher than money funds, he said.