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Finance Dictionary and Glossary of Investment Terms
Money Market Fund
Definition 1.
A mutual fund that invests in short-term debt instruments. The fund's objective is to earn interest for shareholders while maintaining a net asset value of $1.00 per share.
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Definition 2.
A mutual fund that invests only in short-term securities, such as banker's acceptances, commercial paper, repurchase agreements, and government bills. The net asset value per share is maintained at $1.00. Such funds are not federally insured, although the portfolio may consist of guaranteed securities or the fund may have private insurance protection.
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Definition 3.
An open-end mutual fund which invests only in money markets. These funds invest in short term (one day to one year) debt obligations such as Treasury bills, certificates of deposit, and commercial paper. The main goal is the preservation of principal, accompanied by modest dividends. The fund's net asset value remains a constant $1 per share to simplify accounting, but the interest rate does fluctuate. Money market funds are very liquid investments, and therefore are often used by financial institutions to store money that is not currently invested. Unlike bank accounts and money market accounts, most deposits are not FDIC insured, but the risk is extremely low (only those funds administered by banks are FDIC-insured, but some others are privately insured). Although money market mutual funds are among the safest types of mutual funds, it still is possible for money market funds to fail, but it is unlikely. In fact, the biggest risk involved in investing in money market funds is the risk that inflation will outpace the funds' returns, thereby eroding the purchasing power of the investor's money. also called money fund.
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Definition 4.
A highly liquid mutual fund that invests in very short-term securities, such as Treasury bills, certificates of deposit and commercial paper. The share price is kept stable at $1, and interest is paid at competitive rates. Money market funds have taken billions upon billions of dollars in deposits away from banks in recent years, even though they aren''t government insured. (Total money market fund assets stood at $1.027 trillion for the week ended October 1, 1997.) Many even offer check-writing.
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