Money market fund
Also known as: MMF
A money market fund is a type of that invests in short-term, high quality, low risk , such as , , and short-term certificates of deposit, with the goal of preserving a stable share price while paying out current interest income. Most money market funds aim to maintain a constant , historically one dollar per share, distinguishing them from other whose share price fluctuates with the of their holdings.
Because they hold only short-term, high credit quality debt, money market funds are designed to be one of the lowest risk places to hold cash while still earning a return, and they are commonly used as a parking spot for cash inside a , either while an investor decides what to buy next or as the default place uninvested cash automatically sweeps into. Their yield moves closely with short-term interest rates, so a money market fund's income rises when the raises rates and falls when it cuts them.
While money market funds are considered very low risk, they are not insured like a bank deposit and their stable share price is not guaranteed, in rare periods of severe market stress a fund's can fall below its target level, an event sometimes called breaking the buck. This is uncommon, and regulators have tightened rules for these funds over the years specifically to reduce that risk, but it means a money market fund, while conservative, still carries a small amount of risk that a bank savings account or CD does not.