• Mutual Funds
  • Money Funds and the Regulators

    by Mike Krasner

    It is highly likely that as a member of AAII you have savings or retirement money tucked away in a money market mutual fund (MMF), or indeed maybe more than one.

    The Investment Company Institute (ICI), the trade association that speaks for the mutual fund industry, cited in its 2013 “Fact Book,” year-end 2011 data attributed to The IRA Investor Database showing that traditional IRA investors allocated 13.9% of their portfolios to money market funds while in their 30s and 13.9% when in their 60s. Overall, ICI stated that retirement account assets in money market funds totaled $379 billion in 2012.

    Money fund investors are all given a fund prospectus that spells out the fund’s objective and what types of securities it is allowed to buy or specific security types it is not allowed to hold in its portfolio. The prospectus also covers the benchmark index used to measure investor returns, how the fund allocates its expenses, how to invest in the fund, and other pertinent information.

    The prospectus and each accompanying marketing piece issued by a fund provider include some bullet points in bold type intended to make it as clear as humanly possible that a money market fund is an investment product and is not a bank product. Fund providers note in bold letters that a money market fund is not covered by bank insurance. Such communications also include an unambiguous, strong warning that there is a risk that you can lose money by investing in a money market fund. In fact, each fund offering typically includes language that is similar to this: “While the fund’s portfolios seek to maintain a stable net asset value of $1.00 per share, it is possible to lose money investing in the fund.”

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    Mike Krasner is managing editor at iMoneyNet, which provides information on money market funds to institutions.


    Discussion

    Roger from Louisiana posted over 3 years ago:

    The Gov't should leave money market funds alone. Every time they mess with something they make it worse. They ruined our energy supplies - instead of making our energy supply more independent, they made us more dependent; they ruined our education system; they ruined our health system; they have made millions more dependent on gov't handouts; and much much more. We have been over-regulated to the breaking point. Once we were the free-est nation in the world. All to soon we have dropped to 10th place. At the rate we are going we will soon be a 3rd-world country.


    harryrich from Ohio posted over 3 years ago:

    Given the fact that the MMF manager's income and decision-making systems are a large part of MMF cost I'd think a manager could have a hard time being objective in a choice between reducing cost and increasing risk. So, regulation seems appropriate. The question as to whether it will work or not is beyond me.

    My fear if MMF share prices are allowed to float is that keeping track of or avoiding wash sales, particularly with multiple accounts, may become a nightmare.

    Harry


    Charles Rotblut from IL posted over 3 years ago:

    Investment News has a recent update on what is happening with money market reform:


    John from Kentucky posted over 2 years ago:

    Banking and investment companies were and are highly regulated companies. It was the regulators that made the decision to save Bear Sterns and let Lehman Brothers collapse triggering the liquidity crisis.

    One money market fund broke the "buck" and now we need more rules from the same people who triggered the crisis?


    Charles Rotblut from IL posted over 2 years ago:

    An addendum: After this article was published, the SEC published new rules regarding money market funds. These rules were discussed in the Investor Update email.

    -Charles


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