Money market funds: key facts and figures

What is money market fund?

An MMF is a type of mutual fund.  

MMFs issue shares to investors to finance their activities, offering a high degree of liquidity, diversification and market-based yields.

The value of their shares fluctuates in line with the price of the debt instruments in which they have invested. They have to maintain a high level of asset liquidity to be able to meet daily redemptions by their investors.

MMFs are considered to be systemically relevant entities, due to their close ties to the banking sector and other financial activities. In addition, MMFs are an important source of corporate and government financing, therefore runs on funds (i.e. massive withdrawals from MMFs) in a financial crisis may have important macroeconomic consequences.

Alternative to bank deposits

MMFs are often used as an alternative to bank deposits, because they offer diversification of investments, instantaneous liquidity and relative stability of value; they are also considered a relatively safe option for short-term investment of large amounts of cash.

Suppliers of short-term financing

MMFs are an important supplier of short-term financing to the real economy. They buy short-term money market instruments issued by financial institutions, governments and corporations, such as treasury bills, commercial papers and certificates of deposit. 

Types of money market funds

• variable net asset value (VNAV) - these funds offer redemptions or purchases at a price equal to the fund's net value per share
• public debt constant net asset value (CNAV) - these funds aim to offer an unchanging net asset value per unit or share at which investors purchase or redeem shares. They are obliged to invest most of their assets in government debt
• low volatility net asset value (LVNAV) - these funds' share prices remain constant until a certain limit. This new category of funds can be deemed as a viable alternative to existing constant net asset value money market funds

Assets under the management of money market funds

According to the European Commission (2013), in Europe, MMFs manage approximately 38% of short-term debt issued by the banking sector and around 22% of short-term securities issued by corporations and governments. In total, European MMFs manage assets of approximately €1 trillion and constitute around 15% of the EU's funds industry.