What is a Money Market Fund?

A money market fund is a package of government debt instruments that is assembled by a fund management company. The package is typically comprised of Treasury bills, notes, and bonds. The investment is highly liquid, with many investors putting in funds for as little as a day. The intent of a money market fund is to provide investors with a safe and highly liquid investment.

There are varying levels of risk between different money market funds, since some funds are more active in trying to outperform the market (with an attendant increase in risk).

Advantages of a Money Market Fund

There are three main advantages to a money market fund. First, they are extremely liquid, so it is easy to take funds out of them on short notice. This makes them ideal for anyone who is likely to have an ongoing need for cash. Second, they are extremely safe. Only securities with high credit ratings are included in these funds, so it is extremely unlikely that you will lose your money. Third, they offer a relatively high yield when compared to the offerings of banks and credit unions.