How Safe Are Money Market Funds ?
In the recent subprime crash, the bastion of investment, money market funds, are taking a beating. People are now questioning how safe are money market funds. This is primarily because many of the funds had securities that actually underwent crises during the recent economic recession. |
However, experts are claiming that investors who have invested in money market funds should not panic. Nonetheless, investors who have invested in low yielding Treasury bills are bound to take a hit. But, at the same time, it is imperative that investors who have invested in money market funds realize that even this investment opportunity has certain amount of risk involved. Generally, when it comes to money market funds, people more attention to yield. However, no money market fund can get high yield if it invests in government securities, so most of them had actually invested in subprime mortgage backed securities and that is why they suffered when the subprime crash occurred.
Therefore, in order for an investor to figure out how safe are money market funds, he should know the type of fund he has invested in. The funds that invest primarily in Treasury bills will not invest in commercial papers, and vice versa. Also, money market funds are not insured by the federal government, funds cannot guarantee the one dollar share price.
While usually, people do not lose money by investing in money market funds, the risk is always there. But, according to many investment experts, money market funds are completely safe and do not carry any risks whatsoever.
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