Which fund pools the capital of a large number of investors and uses it to invest exclusively in short-term securities?

Which fund pools the capital of a large number of investors and uses it to invest exclusively in short-term securities?

• A. Money Market Mutual Fund
• B. Certificate of Deposit (CD)
• C. Asset Allocation
• D. Market (Systematic) Risk

Answer: (A)

Pooling capital from a large number of investors into a single fund and investing exclusively in short-term securities describes a money market mutual fund. These funds collect money from many investors and put it into high-quality, short-duration debt instruments such as Treasury bills, commercial paper, certificates of deposit, and repurchase agreements. The aim is to provide liquidity and preserve capital, so investors can access their money quickly while earning modest yields. This focus on safety, liquidity, and short maturities distinguishes money market funds from options like a certificate of deposit (which is a specific bank time deposit), asset allocation (which refers to how a portfolio distributes risk and return across asset classes), or market risk (a type of risk not a pooling vehicle).

Pooling capital from a large number of investors into a single fund and investing exclusively in short-term securities describes a money market mutual fund. These funds collect money from many investors and put it into high-quality, short-duration debt instruments such as Treasury bills, commercial paper, certificates of deposit, and repurchase agreements. The aim is to provide liquidity and preserve capital, so investors can access their money quickly while earning modest yields. This focus on safety, liquidity, and short maturities distinguishes money market funds from options like a certificate of deposit (which is a specific bank time deposit), asset allocation (which refers to how a portfolio distributes risk and return across asset classes), or market risk (a type of risk not a pooling vehicle).