A money market fund's purpose is to provide investors with a safe place to invest easily accessible, cash-equivalent assets. It is a type of mutual fund characterized as a low-risk, low-return investment. Because money market funds have relatively low returns, investors such as those participating in employer-sponsored retirement plans, might not want to use money market funds as a long-term investment option because they will not see the capital appreciation they require to meet their financial goals.

Unlike stocks, money market fund shares are always worth $1. What changes is the rate of interest those shares earn, called “yield.” Some money market funds also come with limited check-writing privileges.

Aside from being low risk and highly liquid, money market funds may be attractive to investors because they have no loads (fees that some mutual funds charge for entering or exiting the fund). Some money market funds also provide investors with tax-advantaged gains by investing in municipal securities that are tax-exempt at the federal and/or state level. A money-market fund might also hold short-term U.S. Treasury securities (T-bills), certificates of deposit and corporate commercial paper.

A downside of money market funds is that they are not covered by federal deposit insurance. Other investments with comparable returns, such as money market deposit accounts, online savings accounts and certificates of deposit, are covered. Money market funds, however, have historically been extremely safe investments and are regulated under the Investment Company Act of 1940.