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.
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.
Money market funds are commonly used for:
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.