What a difference a turmoil-laced economic year can make! For decades, money market funds have been considered one of the safest types of investment instruments, perfect for diversifying the portfolio of a cautious investor. There are a slew of rules and regulations in place courtesy of the Investment Company Act of 1940 that govern the structure, investment types, management and risk factor of money market funds. Historically, money market funds have not been insured or backed by any type of Government protection. However, due to the turn of recent events, some money market funds now have the backing of the U.S. Government behind them.
According to the U.S. Security and Exchanges Commission website, “…money market funds have traditionally not been federally insured. On September 19, 2008, the U.S. Treasury Department announced the establishment of a temporary guarantee program for the U.S. money market mutual fund industry. ” Although it is not officially called insurance, the SEC reports, “Under the Guarantee Program, the Treasury Department will guarantee the share price of participating money market funds that seek to maintain a stable net asset value of $1.00 per share, subject to certain conditions and limitations.”