Money market fund is a type of mutual fund that invests only in short-term securities. The term money market refers to the buying and selling of such securities in the marketplace. Money market funds are also known as liquid asset funds, cash funds, or money funds.
Many institutions need to borrow money for short periods—a year or less. Such institutions include the federal government, banks and other financial firms, and corporations. The securities that these institutions sell in the money market yield returns closely tied to current interest rates. Common types of money market securities include Treasury bills and certificates of deposit.
Like all other mutual funds, money market funds pool the money of many investors and pay them interest. The interest rate paid varies, depending on market conditions. However, it usually exceeds the rate small investors get in savings accounts that have limits on interest rates.
Money market funds developed during the early 1970’s. Their low initial investment, high yields, and safety led to spectacular growth.
See also Investment (Mutual funds); Mutual fund.
