How safe are money-market funds?

The money-market mutual funds don’t have insurance from the Federal Deposit Insurance Corporation (FDIC), an independent agency of the US Government. Every bank money-market deposit account has this insurance, but are relatively safe because of:

 The investments are in securities issued by governments and their agencies and large corporations.

 The maturities of these securities are short term, lowering the risk.

The safest money-market funds invest only in US Treasury securities because of the complete trust and supporting credit of the US Government.

All money market funds are quite secure because large institutional launchings of short-term securities are unlikely to fail on their responsibilities, and prices of short-term securities do not fluctuate widely which accounts for the constant share price of $1 per share.

Before investing in a money-market fund, read the prospectus, which outlines the type of securities where it invests; historically, the risk of negligence has been very low in what treasury bills, CDs, bankers´ acceptances, and commercial papers. Few companies have been negligent with their commercial papers that affected money-market funds holding those issues. Nevertheless, investment companies that managed the funds assimilated the losses without damaging the shareholders. Higher-yielding high-risk short-term securities do exist, and some aggressive money-market funds invest in there to raise their yields.

A funds prospectus outlines investment restrictions for that fund. 

Another thing that worries shareholders is fraud. What would happen if within the fund someone stole or embezzled shareholders’ savings account.

This could definitely happen with any type of investments, but there are some safeguards related to money market funds:

 The investment company does not physically manage the funds. A custodian bank is designed to manage shareholders deposit and transfer accounts.

The custodian bank has insurance as well as being bonded in the event of theft or loss owing to embezzlement or fraud.

That is how money-market funds also have the same safeguards against fraud than other short-term investments such as savings accounts; therefore, investors worries should fade away.