The simplest and most narrowly defined money market fund is the Treasury only money market funds.  The safest money market funds are in this category since they invest in only Treasury bills and U.S. government agency obligations that are backed by the full faith and credit of the U.S. government.  Since the credit quality of these funds is the highest available, they usually offer lower yields than general money funds.

While Treasury funds don’t have the flexibility to purchase alternate investments, they are contractually obligated to purchase and invest in only Treasury bills, prime and government funds may be able to buy a greater variety of money market investment securities such as FDIC-backed bonds, which often offer greater yields than U.S. Treasuries.  Although all money market funds attempts to meet its investment objective by investing in high quality money market instruments, Prime funds extend the type of securities in which they may invest in to slightly less liquid and higher earnings money market instruments.  Prime funds invest in commercial paper, CDs, and Eurodollar deposits, with less emphasis on direct government securities and government agency securities.  These money market funds are only as good and as safe as their underlying securities.

The largest category of money market mutual funds have been the money market funds that invest in general money market securities that offer the high degree of security and liquidity. These money market funds contain a wide range of money market securities, including government securities and others more complex such as asset-backed and dollar denominated foreign issues.  They do not carry the same virtually risk-free level of credit safety as government-only funds but are generally considered to be low-risk investments.

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