What defines a "money market fund"?

A money market fund is defined as a mutual fund that invests in short-term debt securities. These securities typically include treasury bills, commercial paper, and certificates of deposit, which are characterized by their relatively low risk and high liquidity. The primary goal of money market funds is to provide investors with a safe place to invest easily accessible cash-equivalents while earning a return that is slightly higher than that of a traditional savings account.

Money market funds are designed to maintain a stable net asset value (NAV), often pegged at $1 per share, making them a popular choice for conservative investors looking for safety and liquidity. Since they primarily invest in short-term instruments, the returns they provide can fluctuate with interest rates but are generally lower than those offered by riskier investment types, such as stocks or long-term bonds.

In contrast, other options focus on different investment strategies or types of securities that do not align with the nature of money market funds. For instance, investing in long-term stocks or focusing on equity investments would involve different risk and return characteristics than those associated with money market funds. Guaranteeing fixed returns suggests a certainty that isn't typical for mutual funds, which are subject to market risks and fluctuations.