A money market fund is a mutual fund that invests solely in money market instruments. Money market instruments are forms of debt that mature in less than one year and are very liquid. Treasury bills make up the bulk of the money market instruments. Securities in the money market are relatively risk-free.
Money market funds are generally the safest and most secure of mutual
fund investments. The goal of a money-market fund is to preserve
principal while yielding a modest return. Money-market mutual fund is
akin to a high-yield bank account but is not entirely risk free. When
investing in a money-market fund, attention should be paid to the
interest rate that is being offered.
Types of Money Market Mutual Funds
Money market funds are of two types:
1. Institutional Money Market Mutual Funds:
These funds are held by governments, institutional investors and
businesses etc. Huge sum of money is parked in institutional money
2. Retail Money Market Mutual Funds:
Retail money market funds are used for parking money temporarily. The
investment portfolio of money market funds comprises of treasury bills,
short term debts, tax free bonds etc.
Special Features of Money Market Mutual Funds