What is the primary goal of a money market fund?

The primary goal of a money market fund is to provide a safe place to invest short-term funds while preserving capital. Money market funds are designed to offer stability and liquidity, making them suitable for investors looking for a low-risk investment option. These funds typically invest in short-term, high-quality debt instruments such as Treasury bills, commercial paper, and certificates of deposit, which help mitigate the risk of loss and ensure that the principal amount remains protected.

Unlike other types of investment vehicles that aim to maximize returns through capital appreciation or high dividend yields, money market funds focus on maintaining the value of the investor's principal while providing modest returns through interest income. This characteristic makes them particularly appealing to risk-averse investors or those who need quick access to their funds without the risk of significant fluctuations in value.

In contrast, other options, such as seeking high capital gains or high dividend yields, do not align with the fundamental purpose of a money market fund, which prioritizes safety and liquidity over higher returns. Similarly, while diversification across various asset classes can be an investment strategy, money market funds typically concentrate on short-term debt instruments, focusing more on capital preservation.