What is a money market fund?

A money market fund is primarily a type of mutual fund that invests in short-term, high-quality debt instruments such as Treasury bills, commercial paper, and certificates of deposit. One of its key features is its goal to maintain a constant net asset value of $1 per share. This stability is achieved through careful investment in low-risk, short-term investments that provide liquidity and safety, making it an attractive option for investors seeking a low-risk investment vehicle.

In contrast to the other options, a money market fund is specifically designed to provide investors with a way to manage cash while earning a modest return. Long-term securities, which involve more volatility and risk, do not align with the purpose of a money market fund. Additionally, while insured savings accounts may offer similar benefits, they are not considered mutual funds and do not operate with the same investment strategy. Cryptocurrency investment funds focus on a vastly different asset class and do not aim for the preservation of capital in the same manner as money market funds do. Thus, the defining characteristic of a money market fund is its effort to keep the net asset value steady at $1, providing a dependable place for investors to park their money in the short term.