Tuesday, November 4, 2008

Don't break the buck

I recently received an update to the prospectus to a money market mutual fund I own explaining that the fund would be participating in the U.S. Treasury's Temporary Guarantee Program for Money Market Funds. The Treasury is guaranteeing (subject to some fine print, naturally) that if a money market fund breaks the buck (has a net asset value of under $1 per share) and liquidates, investors in that fund will get the full $1 per share value. The big caveat is this only applies to shares the investor held as of September 19, 2009. If an investor adds shares after that date, then the new shares would not be covered and therefore subject to loss. The program runs until December 18, 2009, but can be extended by the Treasury to September 18, 2009. The Treasury published a list of FAQs on the program too.

The program isn't free

For this protection, my fund will have to pay %0.015 of its net asset value (NAV). This cost will be borne by the fund, not the management company. Yeah, that's a great deal for investors. We have to pay for the insurance on so-called "safe" money market funds that are turning out to be crappy. How about the management companies step up and pay the insurance?

The guarantee program was extended until April 30, 2009.