A. Money market funds are mutual funds that invest in debt securities with short maturities and minimal credit risk. Their prices reflect the net asset value (NAV), which is the total value of all the securities in the portfolio divided by the number of shares outstanding.
If you understand the 3 different types of the money market funds, you will see if money market funds could lose money or not.
1. Treasury and government money market mutual funds
An example:Fidelity Government Money Market Fund (SPAXX), it invests in the highest-quality, lowest-risk securities issued by the US government and repurchase agreements collateralized by government securities. Treasury and government funds are designed to maintain a stable NAV of $1.00 and they do not place restrictions on investors' ability to access their money in the funds. Government money market funds are open to both retail and institutional investors.
2. Prime funds
An example, Fidelity Money Market Fund (SPRXX), it also offers $1.00 NAVs, but it differs from government funds in that they may invest in more types of securities (e.g. short-term instruments issued by corporations, such as commercial paper and certificates of deposit) and may restrict the ability of investors to access their money in times of severe market stress, either by charging fees to redeem shares or by imposing restrictions on redemptions known as gates.
Institutional investors with significant assets may invest in institutional prime money market funds, like Fidelity Investments Money Market Prime Reserves Portfolio—Class I (FDPXX). These funds also may restrict redemptions in times of stress by using liquidity-triggered fees or gates. They differ, however, in that their NAVs do not remain stable at $1.00, but instead may "float" slightly around $1.00.)
3. Municipal money market funds
An example, Fidelity Municipal Money Market Fund (FTEXX), it invests in short-term securities issued by state and local governments are similar to retail prime funds in that they also offer stable $1.00 NAVs but can restrict investors' access to cash during extreme market conditions.
For all these types of funds, the Fed's support of the short-term markets will help to maintain the highly liquid nature of money market funds. Money market fund yields are likely to trend lower following the recent interest rate cut. Yields on money market funds tend to follow short-term rates set by the Fed, although typically with a lag.