Why should companies that are conservative investors with liquidity concerns invest their excess cash in money market funds?

Investing excess cash in money market funds is particularly suited for conservative investors with liquidity concerns primarily because money market funds are designed to be highly liquid. This means that the funds can quickly be converted into cash without significant penalties or loss of value, making them an ideal choice for companies that may need immediate access to their cash reserves.

These funds generally invest in short-term, high-quality investments such as government securities, commercial paper, and other short-term debt instruments, which helps to ensure both capital preservation and liquidity. Hence, the selection of money market funds allows conservative investors to maintain their cash's accessibility while still earning a modest return, unlike holding cash in a non-interest-bearing account.

While other options may highlight aspects of investment returns, growth potential, or market protection, these characteristics are less critical for a conservative investor primarily focused on liquidity and the safety of their capital.