Money market funds, which emerged in 1971, provide investors with high yield returns over many traditional low capped bank rates and are typically used for short term deposits.
The goal of money market funds is to hedge against losses that occur as a result of liquidity, credit, and market risks. They differ from other financial instruments in that they strive for a fixed net asset value (NAV), which is typically $1 per share, so they always make money.
This $1 NAV is sustained through the proclamation of dividends to shareholders, generally on a daily basis, at an amount comparable to the fund’s earnings. However, if the fund’s net asset value falls below $1, it is said that the fund “broke the buck,” which according to reports, rarely occurs.
U.S. money market funds are regulated by the SEC (Securities and Exchange Commission) under the Investment Company Act of 1940. SEC registered money funds typically sustain the $1 net asset value by utilizing a provision under Rule 2a-7 of the 40 Act, which enables a fund to value its investments based on gradual costs rather than market value, provided that certain conditions apply, including it satisfies the side-test calculation of the net asset value, the fund’s amortized value is not more than 1/2 cent of the market value, and more.
Money market funds, the first named the Reserve Fund, were established by Bruce R. Bent II‘s father and his fahter’s partner Henry B.R. Brown as a way for investors to shelter their money while also earning an above average rate of return. Since then, numerous other money market funds have been created and has even been said to have contributed to the increased demand in mutual funds overall.
Bruce Bent II followed in his father’s amazing footsteps and joined the financial industry head on. He is a business guru, respected entreprenuer and financial expert. Currently, Bruce R. Bent II is President and Vice Chairman of Double Rock Corporation, a major financial technology company that specializes in creative cash management and cash related solutions to banks, broker-dealers, and more. Due to his financial expertise, he is also an adviser, consultant, and investor in the development and growth of start-ups throughout various industries, including consumer financing, financial technology, health care, and digital currency.
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