What is the primary function of Money Market Funds (MMFs)?

What is the primary function of Money Market Funds (MMFs)?

• A. Invest in high-risk stocks
• B. Pool money for long-term investments
• C. Invest in securities with short-term maturity
• D. Operate on a non-profit basis

Answer: (C)

The primary function of Money Market Funds (MMFs) is to invest in securities with short-term maturity. These funds primarily focus on maintaining liquidity and capital preservation, which is particularly appealing for investors seeking a safe and accessible place to invest their cash. MMFs typically invest in government securities, treasury bills, commercial paper, and other short-term debt instruments that generally have maturities of less than one year. This investment strategy helps ensure that the funds can provide investors with a stable net asset value, usually pegged at $1 per share, while also offering competitive interest rates compared to traditional savings accounts. By focusing on short-term securities, MMFs are able to manage risk more effectively and can offer investors quick access to their funds when necessary.

The primary function of Money Market Funds (MMFs) is to invest in securities with short-term maturity. These funds primarily focus on maintaining liquidity and capital preservation, which is particularly appealing for investors seeking a safe and accessible place to invest their cash. MMFs typically invest in government securities, treasury bills, commercial paper, and other short-term debt instruments that generally have maturities of less than one year.

This investment strategy helps ensure that the funds can provide investors with a stable net asset value, usually pegged at $1 per share, while also offering competitive interest rates compared to traditional savings accounts. By focusing on short-term securities, MMFs are able to manage risk more effectively and can offer investors quick access to their funds when necessary.