Can anything that has grown as fast as money market mutual funds be a safe investment?
The answer to that question, frequently asked by people who are tempted by the funds' high yields but have not yet invested in them, is generally ''Yes.'' So far, except for one isolated case - involving a fund advised by a bank, not by a normal mutual fund group as are most money market funds - all of the roughly 150 money funds have managed not to lose shareholders' money while rewarding them with above-inflation interest rates. Even in that case, shareholders did not lose any of their original investment.
Still, people wonder, there must be some that are safer, more productive than others. How do I find them?
Now they have a way. Eight years after the first money market mutual fund was founded, somebody has got around to developing a system of rating them for safety.
The first came out of Fort Lauderdale, Fla., about six months ago when Norman G. Fosback and Glen King Parker, president and chairman, respectively, of the Institute for Econometric Research, introduced ''Money Fund Safety Ratings.'' This four-page monthly newsletter contains items of current interest about the funds and a complete listing of them with Fosback-King ratings of them. The ratings are based on their judgments of the fund's safety, liquidity, and projected yield.
While the two Floridians have had a monopoly on money fund ratings until now, they are about to be joined by another close follower of the industry. William E. Donoghue, publisher of Donoghue's Money Fund Report and author of a book on the money markets, is about to come out with his own system of money fund ratings.
Details of Mr. Donoghue's system will not be available until later this week; but it will compare funds with $100 million or more in assets and will be sent to subscribers of Donoghue's Moneyletter, an $87-a-year publication (Box 540, 770 Washington Street, Holliston, Mass., 01746).
The Fosback-King system gives each of the funds a rating similar to what Moody's or Standard & Poor's would give to municipal or corporate bonds. The safety ratings currently in use start at AAA, and go down through AA, A, and end at BBB.
The safety ratings, Mr. Fosback explained, are based on the fund's investment policies. AAA funds are heavily invested in US government securities, considered the safest, most conservative investments. AA is given to funds invested mostly in certificates of deposit of large banks, and A goes to funds primarily in commercial paper.
The top safety rating is not necessarily the best investment, Fosback noted. An AA or A rating may be almost as safe as the top-rated fund, but is likely to pay a higher return. While there are ratings lower than BBB - four others going down to D - so far no fund has received anything lower than BBB.
Even that rating, Fosback said, is not related to the type of investments. BBB is reserved for those funds that do not report their portfolio holdings often enough.
''Most of these funds turn over their portfolios every 30 days or so,'' he noted. ''So if a fund only tells shareholders what's in its portfolio every six months, and if that report takes a month or two to prepare, it can be as much as eight months out of date when the shareholder sees it.''
Each of the funds is also given a yield forecast rating. There are five categories ranging from plus-2 to minus-2. The 10 percent of the funds with the highest projected yields get the plus-2 rating, the next 15 percent get a plus-1 rating. Fifty percent get a zero rating, which means average yields are expected. Those whose yield are expected to be below average either get a minus- 1 or minus-2 rating.
A few of the funds also have one-word purchase recommendations next to them, including ''buy,'' ''sell,'' ''hold,'' and ''avoid.''
These are funds Mr. Fosback and Mr. Parker think deserve special attention, based on their combined safety and yield forecasts.
A copy of Fosback and Parker's ratings and a report explaining in greater detail how they work is available from the Institute for Econometric Research, 3471 North Federal Highway, Fort Lauderdale, Fla. 33306.