Money market funds invest in short-term debt and aim to provide stable, low-risk returns for cash holdings. Papamoon/Shutterstock
Money market funds are mutual funds that invest in short-term debt instruments with high credit quality, including U.S. Treasury bills and short-term unsecured corporate notes (aka commercial paper). Money market funds aim to sustain a net asset value of $1.00 per share while offering higher yields than bank savings accounts.
What Are the Advantages and Risks of Using a Money Market Fund?
Money market funds are popular with both individual savers and corporations, who often use them as a tool for managing the cash on their balance sheets. They are available through any major brokerage platform and often offer features such as check writing, making them easy to use for larger expenses such as tax payments and major purchases. Shareholders in money market funds can easily transfer assets to or from a bank account or a longer-term investment vehicle.
Taxable money market funds account for the bulk of money market fund assets. They invest in taxable securities such as Treasury bills, other short-term government obligations, and other high-quality, floating-rate debt such as commercial paper. Their holdings typically have pristine credit quality.
