Are money market funds safe?
On One Hand: Invest in Low-Risk SecuritiesBy law, money market funds are required to invest in low risk securities. Investments will typically include certificates of deposit, government-backed debt and commercial paper. In addition, to reduce risk, holdings will almost exclusively be in short term holdings. This improves client safety, as holdings have a smaller chance of defaulting.On the Other: Not Federally InsuredThe major difference between money market funds and bank deposits is money market funds aren’t insured by the Federal Deposit Insurance Corp. (FDIC). Also, money market funds will keep their NAV (net asset value) at $1 par and rather than increase their NAV, the level of their daily yield will change. As such, investors pay special attention to a fund’s NAV level. Therefore, if a holding sours, and the NAV drops below drops below $1, it could lead to a tremendous overflow of client redemptions of cash and cause further losses.Bottom LineAlthough money market funds aren’t
