Money Market Fund

AAA

DEFINITION of 'Money Market Fund'

An investment whose objective is to earn interest for shareholders while maintaining a net asset value (NAV) of $1 per share. A money market fund’s portfolio is comprised of short-term (less than one year) securities representing high-quality, liquid debt and monetary instruments. Investors can purchase shares of money market funds through mutual funds, brokerage firms and banks.

INVESTOPEDIA EXPLAINS 'Money Market Fund'

A money market fund's purpose is to provide investors with a safe place to invest easily accessible, cash-equivalent assets. It is a type of mutual fund characterized as a low-risk, low-return investment. Because money market funds have relatively low returns, investors such as those participating in employer-sponsored retirement plans, might not want to use money market funds as a long-term investment option because they will not see the capital appreciation they require to meet their financial goals.

Unlike stocks, money market fund shares are always worth $1. What changes is the rate of interest those shares earn, called “yield.” Some money market funds also come with limited check-writing privileges.

Aside from being low risk and highly liquid, money market funds may be attractive to investors because they have no loads (fees that some mutual funds charge for entering or exiting the fund). Some money market funds also provide investors with tax-advantaged gains by investing in municipal securities that are tax-exempt at the federal and/or state level. A money-market fund might also hold short-term U.S. Treasury securities (T-bills), certificates of deposit and corporate commercial paper.

A downside of money market funds is that they are not covered by federal deposit insurance. Other investments with comparable returns, such as money market deposit accounts, online savings accounts and certificates of deposit, are covered. Money market funds, however, have historically been extremely safe investments and are regulated under the Investment Company Act of 1940.

VIDEO

Loading the player...
RELATED TERMS
  1. Money Market Account

    An interest-bearing account that typically pays a higher interest ...
  2. Broke The Buck

    When a money market mutual fund's net asset value (NAV) drops ...
  3. Breaking The Buck

    When the net asset value (NAV) of a money market fund falls below ...
  4. Operational Efficiency

    A market condition that exists when participants can execute ...
  5. Shadow Pricing

    1. The actual market value of one share of a money market fund. ...
  6. Flight To Quality

    The action of investors moving their capital away from riskier ...
RELATED FAQS
  1. What are the advantages of a Roth IRA?

    A Roth IRA has many advantages for lower-income investors. Though they are not tax deductible, contributions to your Roth ... Read Full Answer >>
  2. What are the best mutual funds for investing in the electronics sector?

    Within the technology sector, the electronics industry continues to experience growth as the technology that supports producing ... Read Full Answer >>
  3. How do waivers, reimbursements and recoupments affect a fund's expense ratio?

    Waivers, reimbursements and recoupments can initially serve to keep a fund's expense ratio lower than it would be otherwise. ... Read Full Answer >>
  4. Other than my savings account, what other types of holdings compound my interest?

    Investors and savers can use the power of compounding interest to accumulate wealth over time. Unlike simple interest that ... Read Full Answer >>
  5. What are some popular mutual funds that give exposure to the drugs sector?

    The pharmaceutical industry has experienced outstanding growth in the 10 years leading up to 2015, consistently outperforming ... Read Full Answer >>
  6. What can cause the rate of return to be negative?

    Several factors can cause an investment to have a negative rate of return. Poor performance of a company or companies, turmoil ... Read Full Answer >>
Related Articles
  1. Retirement

    Introduction To Retirement Money Market Accounts

    Money market funds are used in retirement plans and accounts because they are liquid, stable and pay competitive rates of interest.
  2. Investing Basics

    Financial Markets: Capital Vs. Money Markets

    Two commonly used components of the financial market are money markets and capital markets. Find out the similarities and differences between them.
  3. Mutual Funds & ETFs

    Money Market Mutual Funds: A Better Savings Account

    An good alternative to the traditional savings account is the money market mutual fund. It's easy, safe and has better returns.
  4. Mutual Funds & ETFs

    Introduction To Money Market Mutual Funds

    Learn about the easiest way to benefit from money market securities.
  5. Personal Finance

    Get A Short-Term Advantage In The Money Market

    This investment vehicle is often the perfect stop-gap measure for growing your money.
  6. Options & Futures

    Do Money-Market Funds Pay?

    This investment provides security, but its returns may not be adequate for long-term investors.
  7. Personal Finance

    How Risky Is Your Portfolio?

    Find out how you could be subject to larger losses than you think.
  8. Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

    Learn about the basics - and the pitfalls - of investing in mutual funds.
  9. Retirement

    The Money Market

    If your investments in the stock market are keeping you from sleeping at night, it's time to learn about the safer alternatives in the money market.
  10. Professionals

    Target Date Funds: More Popular, Cheaper Than Ever

    How target date funds can help investors weather volatility when it comes to saving for retirement.

You May Also Like

Hot Definitions
  1. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
  2. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  3. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  4. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  6. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
Trading Center