Money market funds (MMFs) are a type of mutual fund that invests in short-term, highly liquid, and low-risk financial instruments.

These funds aim to provide investors with a safe place to invest easily accessible cash-equivalent assets while offering a modest return in the form of interest income. They are ideal for preserving capital and providing liquidity.

Key Features :

1. Short-Term Investments:

- Investment Horizon: MMFs invest in instruments that typically have maturities of less than one year, such as Treasury bills, commercial papers, and certificates of deposit.

- Liquidity: Due to their short-term nature, these investments are highly liquid, allowing investors to access their funds quickly when needed.

2. Low Risk.

- Safety of Principal: MMFs focus on capital preservation. The investments they make are generally low-risk, which minimizes the chance of losing the principal amount.

- Stable Returns: While the returns are usually modest compared to other investment types, they are relatively stable and predictable.

3. High Liquidity.

- Ease of Access: Investors can usually withdraw their money from MMFs quickly and with little or no penalty, making these funds a good option for managing short-term cash needs.

4. Daily Compounding.

- MMFs are typically priced daily, allowing investors to know the value of their investments at any given time.

5. Diversification:

- Variety of Instruments: MMFs invest in a diverse range of short-term instruments, which helps spread and mitigate risk.