Money market funds are widely considered to be some of the most conservative and least risky investments. They are typically structured as open end funds which hold liquid assets such as short term loans and obligations. Specifically, their holdings tend to consist of treasury bills and commercial paper which have maturities of less than a year. Such funds are taxable at the federal level. In some cases the funds are composed of municipal securities with short time horizons (less than a year). Such municipal funds are typically exempt from taxation at the federal level and are suitable for investors in higher tax brackets.
Money market funds are liquid and can typically be converted to cash within one business day. They are suitable for investors with very short time horizons (less than a year) and low risk tolerance. They are frequently used to fund short term needs such as emergency funds and current liabilities.
Money market funds held at banks are typically insured by the FDIC (Federal Deposit Insurance Corporation) and are considered as safe as bank deposits. Most, but not all, money market funds held in brokerage accounts at broker-dealers are not FDIC insured. These non-insured funds are generally considered to be low risk, however investors should be aware that they are not as safe as FDIC insured bank deposits.