Despite Scare, Money Funds Remain Safe
How safe is your money market mutual fund? As safe as any investor could reasonably expect. Your principal is always worth $1 a share. Only the yield fluctuates, as interest rates in the market change. Any time you want, you can take out the money you invested, plus the yield it has earned.</br></br>Last month, however, money fund investors got a scare. A handful of funds got stuck with some losses on risky securities they held. Every $1 kept in those funds might have dropped to a value of 99 or 98 cents, had the fund sponsors not injected enough cash to bail everybody out.</br></br>No one has ever lost money in a true money market fund, but there have been some close calls. Here's what's going on:' ÐÊ Which funds ran into trouble? Nearly two dozen are said to have stumbled, but all their names will never be known. Only a couple have acknowledged a problem. The $105 million Zweig Cash Fund needed $415,000 from its sponsor to prevent investors from losing some of their principal. BankAmerica put $67.9 million into two of its Pacific Horizon funds, the $3.2 billion Prime Fund and the $648 million Government Fund, both bought principally by institutions. BA spokeswoman Shirley Norton blamed some of the Prime Fund's problem on high redemptions, which forced it to sell securities prior to maturity.</br></br>No specific rule requires a fund to tell shareholders about a bailout. If the cash infusion is large enough for accountants to deem "material,Û it has to be disclosed in the annual or semiannual report. Even so, it might be buried in an untranslatable footnote.</br></br>To me, that's deceive. Money fund investors put safety first. When considering a new fund, they should be told if its managers once had to be rescued from a risky investment choice.