Money market funds under regulators’ spotlight

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Constant NAV money market funds under regulators’ spotlight

Breaking or not breaking the buck; that is the question!

Money Market Funds (MMFs) are investment funds whose investment objective is to provide investors with capital protection, a low-volatility return and daily liquidity. Typically, MMFs invest in a diversified portfolio comprising high-quality and short-duration instruments.

Executive summary

MMFs are viewed as a safe alternative investment to bank deposits and are often used by institutional and retail investors as a way to manage cash efficiently. MMFs offer investors a larger diversification than regular bank deposits and generate higher returns.

In terms of the broader economy, MMFs play a key role between corporates seeking funding sources and investors looking for investment opportunities. MMFs generate returns from the credit, maturity and liquidity mismatch between their assets and liabilities. Investors can redeem their investments on a daily basis while the time horizon of the investments is typically stated in months. In that respect, MMFs perform bank-like operations in that they play a maturity transformation role. Therefore, they are what are known as shadow banking players.
 

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Performance issue 10 - January 2013

Performance is a triannual digest, dedicated to investment management professionals, which brings you the latest articles, news and market developments from Deloitte’s professionals and clients. 

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