money-market fund

money-market fund, type of mutual fund that invests in high-yielding, short-term money-market instruments, such as U.S. government securities, commercial paper, and certificates of deposit. Returns of money-market funds usually parallel the movement of short-term interest rates. Some funds buy only U.S. government securities, such as Treasury bills, while general-purpose funds invest in various types of short-term paper. They became enormously popular with investors in the early 1980s because of their high yields, relative safety, and high liquidity. Investment in money-market funds soared from $20 billion in the late 1970s to over $150 billion in the early 1980s. Much of the growth came at the expense of banks and thrift institutions. With the recession of the late 1980s and early 1990s, interest rates (and, temporarily, the popularity of the funds) dropped. By 1999 more than $800 billion was invested in U.S. money-market funds.

The Columbia Electronic Encyclopedia, 6th ed. Copyright © 2007, Columbia University Press. All rights reserved.

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