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Wednesday, August 29, 2007

Concerns regarding Money Market funds

The CNNMoney.com article discusses the concerns regarding the problems with subprime debt and whether they may cause money-market funds to "break the buck", that is, go under the $1 share value that they seek to maintain to ensure safety of principal.

As per the article, it makes sense not to dismiss concerns about the security of money market funds in this environment, but people do not need to be paranoid. The article mentions that there has been some misinformation floating around regarding some money markets funds not being able to satisfy redemption requests. However, those funds were not true money market funds.

Although there are no 100% guarantees for losses, as per the article, the Securities and Exchange Commission has strict quality standards that apply to all the investments a money fund might own, and these standards make it extremely unlikely that a money would suffer an actual loss. In addition, although not mandatory, the fund company running the money fund is likely to step in to prevent the fund from breaking the buck.

While the article doesn't completely dismiss the possibility of suffering loss by investing in the money market funds, it was good to read it as I have been also hearing about these concerns in the news, and wasn't sure if there was any validity to such concerns. I have some money in the money market funds, and in the past had felt no fear about losing my principal. Although they are not FDIC-insured, I put it there since they earn better return compared to deposits in the banks and I plan to continuing doing so.

For complete article, see:

CNNMoney.com: Debunking money market fears

posted by Ruby @ 6:55 AM

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