Buzz
If you're involved in a money market fund, it's important to note new rules being established by the Securities and Exchange Commission (SEC) this week. The new regulations could allow these funds to charge shareholders withdrawal fees of up to 2%.
A money market fund is a type of mutual fund with such low returns that it’s typically considered a cash-equivalent investment. You may not even realize that you have one. For instance, when I set up my IRA, my funds were automatically allocated to a money market fund. I had to actively research and purchase other investments to optimize my portfolio.
Starting October 14th, the SEC will enforce new rules for these funds. One significant change allows fund boards to impose an additional 'liquidity fee' if you withdraw your funds under specific conditions, particularly during times of financial stress when many others are withdrawing. CBS News explains that this rule stems from the 2008 financial crisis:
It’s not that managers of money market funds are motivated by greed. These rules come as a response to the large-scale withdrawals during the financial crisis when shareholders urgently needed cash. The massive withdrawals, combined with falling asset values, caused several money market funds to lose value, resulting in a phenomenon known as 'breaking the buck.' Starting Friday, funds will be allowed to charge shareholders up to 2% in fees if their weekly average liquid assets fall below 30% of total assets.
The goal is to prevent losses by slowing withdrawals when a fund becomes illiquid, helping to avoid actual losses. Many investment firms, such as Vanguard, have already taken steps to prepare for these upcoming changes.
These new regulations don’t affect government funds, and CBS News actually suggests transferring your money to a government fund if you’re holding a money market fund. We’ve also provided additional recommendations on where to park your money, depending on your financial objectives. Remember, these rules apply to money market funds, not money market accounts, which are FDIC-insured bank accounts, not investments.
If you're invested in a money market fund, it's important to be aware of these upcoming changes. You can read the full SEC rules through the link below.
Photo by TaxCredits.net.
