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Feature: A hard lesson learned
03 June 2010
Money market funds suffered high profile problems during the financial crisis but increased regulation and a back to basics approach have seen the industry emerge more transparent and risk aware
Money market funds were the no lose investment that, even when markets were bad, guaranteed you would get your money back. History proved it. At least that was the perception of many who invested in them.However, just as it exposed cracks in other areas of the financial markets, the global economic crisis shattered that perception and proved that money market funds are not completely immune to economic turmoil.The Securities & Exchange Commission (SEC), which regulates the funds in the US, describes them as a type of mutual fund that is required by law to invest in low-risk securities. These funds have relatively low risks compared to other mutual funds and pay dividends that generally reflect short-term interest rates. Typically money market funds invest in government securities, certificates of deposit, commercial paper of companies, or other highly liquid and low-risk securities. They attempt to keep their net asset value (NAV) at...
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