tailieunhanh - Portfolio Management of Money Market Funds

At the end of each business day, money market funds, like all other mutual funds, must calculate and publish a NAV that equals the aggregate value of all of their holdings minus any liabilities. For all funds other than money funds, this NAV reflects the market value of the securities held in the fund. But money market funds are different. If they meet certain tests, as set out in the SEC’s Rule 2a-7, they can use the amortized cost accounting method to compute their reportedNAV. 2 Thismethod allows themto reflect the price paid for the security—rather than its current market value—in the NAV calculation. 3 No other mutual funds use. | 7 Portfolio Management of Money Market Funds Money market mutual funds have become an essential cash management tool for both institutions and individuals. They were created in the 1970s for investors disappointed with the yields available on bank savings accounts which at the time were limited by federal Through money market funds those investors could pool their funds together to buy higher-yielding short-term alternatives that were then generally available only in very large denominations. Money market funds quickly became a staple investment for both individuals and businesses. By the end of 2009 their assets topped 3 trillion equal to roughly 30 percent of total fund industry assets. While the benefits of owning a money fund have always been clear the risks have been less so. Investors don t expect to take a loss on shares of a money market fund. They anticipate instead that every dollar put into the fund will be returned plus interest. That s a reasonable expectation because money market funds are designed to maintain a NAV of per share. While the NAV of other types of mutual funds fluctuate daily the NAV of money funds stays steady usually that is. As investors learned to their shock in the 2008 credit crisis the NAV of money market funds can indeed fall below meaning that investors do bear a risk of loss however small. This chapter explores the inner workings of money market mutual funds how they maintain a steady NAV and the risks to that stability. This chapter reviews The stable NAV and what can go and has gone wrong to make that NAV fluctuate The types of securities held by money market funds 169 170 MUTUAL FUND PORTFOLIO MANAGEMENT The investment process used to manage money market funds The role of money funds in the . financial system particularly during the credit crisis of 2008 Note Before you read on please note that we assume throughout this discussion that you are familiar with fixed income terminology. If that s .