Meaning of Money Market Mutual Fund
A money market mutual fund is a type of fund that mimics an investment in bank savings accounts, money market accounts or checking accounts. The fund purchases securities with the pool of funds from investor money.
Each fund share costs $1, so a money market fund operates like any bank account. An investor puts a dollar in, and gets a dollar out, plus interest. The timing of interest payments varies by fund, so check the fund's prospectus before investing. Investors have access to their funds online, by phone or by writing a check. Money market funds limit the number of withdrawals and checks an investor can write per month.
The Federal Deposit Insurance Corporation (FDIC) does not insure money market funds. That makes these funds different from bank money market accounts, which are insured. The risk of loss is very low, however, because the law requires all money market funds to purchase only low-risk investments.
Money market funds invest in certificates of deposit, Treasury bills issued by the U.S. government, and loans between banks and corporations, called "commercial paper." Some funds invest only in Treasury bills and related government securities and are virtually risk-free since the U.S. government backs the underlying securities.