What is a Money Market Fund?

Answer:
Money market funds are a type of law-regulated mutual fund that must invest in low-risk securities. The Investment Company Act of 1940 is the primary law that governs how money market funds work.

Compared to other types of mutual funds, money market funds have relatively low risks. They also tend to pay dividends reflecting short-term interest rates.

The goal of a money market fund is to keep their Net Asset Value at $1.00 per share with only the yield fluctuating up and down. To achieve this, money market funds are usually invested in highly liquid, low-risk securities such as certificates of deposits, government securities, and commercial paper of companies. While money market funds are low risk investments, they aren’t risk free. If the fund’s investments perform poorly, the fund’s Net Asset Value
can fall below $1.

Money market funds are not federally insured though money market accounts at a bank (such as a money market savings account) are federally insured through the FDIC. Money market funds and money market savings accounts are two separate types of investments.

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