What Is a Money Market Fund?

A money market fund is a type of mutual fund. It focuses on investing in high liquid cash securities with high credit ratings. It is also known as a money market mutual fund. These funds mainly invest in debt-based securities with a short-term maturity (less than 13 months). Money market funds issue shares and are obligated to follow guidelines made up by the local regulators.

Breaking Down Money Market Mutual Funds

When you look at their key features, money market funds are like any other mutual fund. However, there is one major difference. It aims at maintaining a NAV (net asset value) of $1 per share. Investors receive any excess earnings in form of dividend payments. The investors are free to redeem or buy money market fund shares through banks, brokerage firms and mutual funds.

Money market mutual funds are popular for a few reasons, one of the main ones being the requirement to maintain a $1 NAV. Fund managers are forced to pay the fund investors regularly and this offers the investors a regular flow of income. It also simplifies the process of tracking and calculating the net gains that the fund generates.

Breaking the Buck

A money market fund may drop below the $1 NAV occasionally-this condition is called “breaking the buck”. It is brought about by the failure of the money market fund…