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Money Market Fund

Low-volatility fund that invests in very short-term, high-quality instruments and is commonly used for cash management and liquidity.

A money market fund is a pooled fund that invests in very short-term, high-quality instruments such as Treasury bills, commercial paper, certificates of deposit, and repurchase agreements.

It is usually used for liquidity management rather than long-term growth. Investors treat it as a cash-management tool that aims to preserve principal while paying a modest yield.

How It Works

Most money market funds hold instruments with short maturities and high credit quality. That combination is meant to keep price volatility low and make the fund easier to use as a near-cash holding.

Many money market funds are structured as open-end funds and calculate value from their underlying holdings, even when they are managed to feel operationally stable for investors.

Why Investors Use It

Money market funds are commonly used for:

  • holding cash between larger investment decisions
  • treasury and liquidity management
  • emergency reserves or operating cash
  • seeking a yield that may be higher than a plain deposit account

Main Risks

Money market funds are lower-risk than many other fund types, but they are not the same as insured bank deposits. Credit events, liquidity stress, and rate changes can still affect fund operations and investor outcomes.

The classic stress event is “breaking the buck,” where a fund’s net asset value falls below the level investors expected to hold steady.

  • Open-End Fund: Common legal and operating structure for money market funds.
  • Net Asset Value: Pricing measure used across pooled funds.
  • Mutual Fund: Broader category that includes many money market funds.
  • Treasury Bill: One of the common short-term instruments held by money market funds.
Revised on Monday, May 18, 2026