Fee waivers for tax-exempt money market mutual funds

In this study we investigate why tax-exempt money market mutual funds often waive fees. Contrary to statements in the popular press, our results provide weak evidence that fee waivers lead to asset growth. We find strong evidence, however, that fee waivers are used to keep the fund's reported yield in line with competitors. We find that funds have comparable before-expense yields and that smaller funds generally have higher expenses. If all expenses were charged to investors, then smaller funds would significantly underperform larger funds. Thus, in order to keep reported yields in line with competitors, smaller funds must waive a significant portion of fees.