Asset Classes4 分钟阅读

What Is a Money Market Fund (MMF)

An MMF, which earns interest even if you park money for just a few days—is it as safe as a deposit? Let's find out why the frightening phrase 'break the buck' came about.

What is an MMF

An MMF (Money Market Fund) is a fund that invests in short-maturity, high-credit-quality short-term debt securities. It diversifies across short-term instruments such as government and public bonds, certificates of deposit (CDs), and commercial paper (CP).

Its features are stability and liquidity. A representative stable-type U.S. MMF is managed with the goal of maintaining a net asset value (NAV) of $1.00 per share. A Korean MMF accrues returns daily, so no matter when you cancel, you can receive the returns accrued so far, and you can usually withdraw the money within the same day to at most 2 business days.

That's why MMFs are widely used for 'money parked briefly while waiting.'

What does 'break the buck' mean

A U.S. MMF tries to maintain a NAV of $1.00. When this value falls below $1.00, it's called 'breaking the buck.' A stable-type MMF must re-price to a different value if its NAV deviates more than half a cent from $1.00—and that is exactly the situation of breaking the buck.

The reason this phrase is frightening is that it means the implicit expectation—that the money put into an MMF will stay as principal, intact—is broken. It's the moment when it's revealed that a product that looked like a deposit is actually an investment product with no principal guarantee.

2008: what actually happened

On September 16, 2008, the roughly $62.5 billion U.S. Reserve Primary Fund broke the buck.

This fund held about $785 million of commercial paper (CP) issued by Lehman Brothers, and when Lehman went bankrupt, the value of that asset collapsed. As a result, the NAV fell below $1.00 to about $0.97. Even though it was a loss of just over 3%, the shock that the principal—believed to 'never break'—had broken was great.

This event triggered mass redemptions across the entire MMF market (a withdrawal panic similar to a bank run) and became one axis that magnified the financial crisis.

This case is a representative lesson showing that 'even an MMF can lose principal.' It's rare in normal times, but it can happen in an extreme crisis.

Korea's MMFs and CMAs

In Korea, an MMF is a performance-based product that is not covered by depositor protection. It's stable in normal times, but there is interest-rate risk: if the rates of the bonds it holds rise, bond prices fall and principal loss can occur.

You should also distinguish it from the CMA, which is used for similar purposes. A CMA is an account with checkbook-like functions such as card payments and transfers; a merchant-bank-type CMA is covered by depositor protection, but the general CMAs offered by securities firms (RP-type, MMF-type) are in principle not subject to depositor protection.

To sum up, MMFs and most securities-firm CMAs are not 'deposits.' They offer convenience and small returns, but you must remember they carry no principal-and-interest guarantee like a bank deposit.

常见问题

Q. Is an MMF as safe as a deposit?

No. An MMF is a fund (a performance-based product), not a deposit, so its principal isn't guaranteed and it isn't covered by depositor protection either. It's very stable in normal times, but in extreme situations there have been cases of principal loss, like the U.S. Reserve Primary Fund in 2008. 'Almost safe' and 'guaranteed' are different.

Q. Should I use an MMF or a CMA?

It depends on the purpose. Both suit short-term money management, but a CMA has checkbook-like functions such as card payments and transfers, making it convenient to use like a living account. However, securities-firm CMAs and MMFs are generally not subject to depositor protection—that's common to both. If you want a guarantee, first check whether the product is covered by depositor protection.