A money market fund is an investment fund comprising a portfolio of high-quality, short-term securities, such as treasury bills and commercial paper, and that pays dividends that normally reflect short-term interest rates.

As with bond funds, money market funds are classified by their principal underlying assets:

  • Government money market fund – A money market fund that invests 99.5% or more of its total assets in cash, government securities, and/or repurchase agreements that are fully collateralized by government securities or cash;
  • Tax-exempt money market fund – A money fund comprised of the [donotmark]short-term[/donotmark] debt securities of state and local jurisdictions (municipal notes), which are usually exempt from US federal income tax and the income tax of the state of issue; and
  • Prime money market fund – A fund that invests mainly in high-quality commercial paper, certificates of deposit and short-term government, agency and municipal securities.

Money market funds are also characterized by the nature of investor they are targeted to:

  • Retail money market fund – A money fund offered primarily to retail investors, with policies and procedures designed in the interest of such investors; and
  • Institutional money market fund – A money market fund requiring a high minimum investment and marketed to corporations, governments and financial fiduciaries, commonly set up to automatically pool idle cash from the main operating accounts of the institutional investors and to [donotmark]transfer [/donotmark](“sweep”) the cash to the fund overnight.

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