A money market fund is a type of mutual fund that invests in short-term, high-quality debt securities such as US Treasury bills, commercial paper, and cash equivalents. The primary goal of a money market fund is to maintain a highly stable asset value through liquid investments while paying income to investors in the form of dividends. Money market funds are regulated in the United States under the Investment Company Act of 1940 and in Europe under Regulation 2017/1131. They are important providers of liquidity to financial intermediaries.

Here are some key features of money market funds:

• Investments: Money market funds invest in short-term, high-quality debt securities such as US Treasury bills, commercial paper, and cash equivalents.
• Goal: The primary goal of a money market fund is to maintain a highly stable asset value through liquid investments while paying income to investors in the form of dividends.
• Regulation: Money market funds are regulated in the United States under the Investment Company Act of 1940 and in Europe under Regulation 2017/1131.
• Risk: Money market funds seek to limit exposure to losses due to credit, market, and liquidity risks.
• Returns: Money market funds generate income (taxable or tax-free, depending on their portfolio), but little capital appreciation.
• Liquidity: Money market funds are intended to offer investors high liquidity with a very low level of risk.
• Investment horizon: Money market funds may be appropriate for customers who have an investment goal with a short time horizon, have a low tolerance for volatility, or are looking to diversify with a more conservative investment.

Money market funds are generally considered extremely low-risk on the investment spectrum, though they are not quite as safe as cash. They are intended to be as safe as possible, but like all investments, they are not risk-free. The price of a money market fund share has dropped below $1 only twice in history, and that was before additional regulations were put into place in 2016 to make them even safer.