Mutual fund investing in liquid short-term debt, cash, and cash equivalents for liquidity and income, with stable- or floating-NAV rules depending on fund type.
A money market fund is a mutual fund that invests in liquid, short-term debt securities, cash, and cash equivalents. It is commonly used for cash management and short-term income, but it is an investment product rather than an FDIC-insured bank deposit.
U.S. money market funds operate under specialized rules governing portfolio maturity, credit quality, diversification, liquidity, valuation, and reporting.
| Category | Typical holdings | Important distinction |
|---|---|---|
| Government money market fund | Cash, government securities, and qualifying repurchase agreements. | Generally seeks a stable $1 NAV and has the narrowest issuer set. |
| Prime money market fund | Government instruments plus high-quality short-term corporate and bank obligations. | Adds private issuer credit and liquidity exposure. |
| Tax-exempt money market fund | Short-term municipal obligations intended to produce tax-exempt income under applicable rules. | Credit, tax, and state-specific features require review. |
Retail funds are generally limited to natural persons. Institutional prime and institutional tax-exempt funds float their NAV to reflect current market-based asset values.
| Feature | Stable-NAV fund | Floating-NAV fund |
|---|---|---|
| Share price | Seeks to transact at $1 per share using permitted valuation and rounding methods. | Moves with the market-based value of assets. |
| Common categories | Government and retail money market funds. | Institutional prime and institutional tax-exempt funds. |
| Loss signal | Repricing below $1 is called breaking the buck. | Small NAV changes are expected and are not described the same way. |
Stable NAV does not mean the underlying holdings never change in value.
Assume $10,000 earns a 4.5% annualized yield for 30 days. Using a simple estimate before taxes and ignoring compounding:
$10,000 x 4.5% x 30 / 365 = $36.99
That is not a promised return. The fund’s yield can reset as securities mature, rates change, expenses are deducted, and portfolio holdings change.
Under current SEC rules, money market funds generally must maintain at least 25% of assets in daily liquid assets and 50% in weekly liquid assets. Certain institutional prime and institutional tax-exempt funds are subject to mandatory liquidity fees when specified redemption and cost conditions are met. Non-government funds may also use discretionary liquidity fees under applicable rules.
These tools are intended to improve resilience and allocate redemption-related liquidity costs. Investors should read the current prospectus for the exact policy that applies to a fund.
| Feature | Money market fund | Bank money market deposit account |
|---|---|---|
| Legal form | Mutual fund security. | Bank deposit. |
| Protection | Not FDIC-insured. | May be FDIC-insured within applicable limits and conditions. |
| Return | Fund dividends based on portfolio income after expenses. | Interest paid under the deposit terms. |
| Value | Stable or floating NAV depending on category. | Deposit account balance, subject to account terms. |
Similar names do not create the same legal protections.
This page provides general financial education, not personalized investment, tax, or cash-management advice. Money market funds can lose value and are not universally suitable substitutes for insured deposits.