If my mail is a valid indicator of your concerns, there are a lot of you out there who don't really understand wht a money market fund is and how it works.

I've answered specific questions here a number of times, but maybe it would be helpful if I provided a more complete explanation now.

A money market fund operates on the concept of "pooling." That is, it accumulates the cash deposits of a large number of generally small, individual investors. The pooling technique makes it possible for the fund managers to go into the market with large sums of money.

A money market fund is a regulated investment company, or open-end mutual fund. Like all mutual funds, it offers shares on a continuing basis and stands ready to redeem shares on demand.

Mutual funds have advantages over standard savings accounts because of the rate of return they can pay on investment. Financial institutions like banks and savings and loan associates are limited by regulation in the interest rates they can offer on the various types of saving accounts.

The yield on certificates of deposits -- particularly on the six-month T-bills -- also is considerably higher than on regular savings accounts. But in return you must agree to leave the funds in the certificate account for some specified period of time, with a rather severe penalty for earlier withdrawal.

The regulatory rate ceilings do not apply to deposits greater than $100,000; when you get over that ceiling, rates are set by the operation of the marketplace.

Throughout the year, large industrial corporations, financial institutions and even government agencies have short-term needs for cash. ("Short-term" can mean as little as 24 hours or as long as six months.) This is the market used by the money market funds to generate their high yields.

These short-term IOUs are not insured or guaranteed in any way. (Bank certificates of over $100,000, even when issued to individuals, are not insured by the FDIC, the FSLIC or any other federal agency.) But mmost money market funds deal only with large and well-rated organizations, and in my opinion risk is extremely low.

Most money market funds are "no load" -- that is, there are no sales charges or commission fees to get in or out. There is a small service fee to the adviser, generally in the neighborhood of one-half of one percent of assets.

And the fund also has some expenses, such as audit and legal fees, transfer agent expenses, the cost of prospectuses and annual shareholder meetings.

After deducting all these, however, the funds still were paying around 14 percent or better early this month, and last winter -- when interest rates in general were higher. -- most of the funds were above 17 percent.

These rates change as the prime and related public rates go up or down, but they are usually higher than you can get in any comparable cash market. And if the return on a fund drops enough to make you unhappy, you always can get out -- without penalty -- on demand.

It's pretty easy to get into or out of a money market fund. Most funds have a minumum initial deposit requirement of between $1,000 to $2,500. A fre will let you on board with as little as $500. There are much lower requirements (in some funds none at all) for follow-on investments.

And most funds provide a no-cost bank draft system -- esentially a checkbook -- which permits you to withdraw funds simply by depositing a check in your regular checking account.

You even can use these checks to pay bills directly, but there is a minimum amount for which you can write a check (usually $500). So you can't pay your household bills with your money market fund checks, and the fund is not a substitute for a regular checking account.

The money market funds have enjoyed a phenomenal growth. By the end of 1980 there were more than 5 million money market fund accounts totaling an amazing $74 billion.

A lot of this money would otherwise be in bank, S&L or credit union accounts of one kind or another. Understandably, those financial institutions are unhappy over the loss of these funds.

So they are pressing, individually and through their trade associations, for legislation which would force the funds to give up checking privileges, or at least require them to meet the same reserve requirements the banks do, which would cut fund yields by perhaps one or two points.

I don't think this move will succeed. A more logical step would be to remove present restrictions on savings account interest to permit the banks and S&L to compete in a free market.

Meanwhile, the money market funds offer an attractive, high-yield repository for your short-term cash holdings, with the convenience of check withdrawal and none of the penalties associated with time deposits.