Breaking The Buck

DEFINITION of 'Breaking The Buck'

When the net asset value (NAV) of a money market fund falls below $1. Breaking the buck can happen when the money market fund's investment income does not cover operating expenses or investment losses. This normally occurs when interest rates drop to very low levels, or the fund has used leverage to create capital risk in otherwise risk-free instruments.

BREAKING DOWN 'Breaking The Buck'

The NAV of a money market fund normally stays constant at $1 because investment products usually do not produce capital gains or losses. As such, the principal in a money market fund usually remains constant, making risk exposure non-existent compared to stocks, bonds and non-money market mutual funds.

The first case of a money market fund breaking the buck occurred in 1994, when Community Bankers U.S. Government Money Market Fund was liquidated at 94 cents because of large losses in derivatives.

RELATED TERMS
  1. Broke The Buck

    When a money market mutual fund's net asset value (NAV) drops ...
  2. Money Market Fund

    An investment fund that holds the objective to earn interest ...
  3. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  4. NAV Return

    The change in the net asset value of an exchange-traded fund ...
  5. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
  6. Forward Pricing

    A Securities and Exchange Commission regulation that requires ...
Related Articles
  1. Retirement

    Analyzing The Best Retirement Plans And Investment Options: Mutual Funds

    What they are: A professionally managed pool of stocks, bonds and/or other instruments that is divided into shares and sold to investors. Pros: Diversification; liquidity; simplicity; ...
  2. Mutual Funds

    What mutual funds are: Professionally managed pools of stocks, bonds and/or other instruments that are divided into shares and sold to investors. Pros: Diversification; liquidity; simplicity; ...
  3. Financial Advisors

    Impact of SEC's New Money Market Fund Rules

    A look at how new rules introduced by the SEC will impact money market funds.
  4. Professionals

    Net Asset Value

    CFA Level 1 - Net Asset Value. Describes the calculations behind net asset value for open and closed-end funds. Reveals why differences between share price and NAV exist.
  5. Investing News

    4 Factors to Know About Money Market Reform in 2016 (FII, BAC)

    Learn more about the impending implementation of the money market fund reform, including how it impacts individual and institutional investors.
  6. Options & Futures

    20 Investments: The Money Market

    What Is It? The money market deals in fixed-income securities, not unlike the bond market. The major difference is that the money market deals in short-term debt and monetary instruments. In ...
  7. Professionals

    Mutual Fund Marketing and Pricing

    Mutual Fund Marketing Mutual fund shares are marketed according to the rules established by the Investment Company Act of 1940. Any mutual fund advertisement containing performance data ...
  8. Mutual Funds & ETFs

    Mutual Funds

    Mutual Funds introduction
  9. Investing

    Advising FAs: Explaining Mutual Funds to a Client

    More than 80 million people, or half of the households in America, invest in mutual funds. No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
  10. Mutual Funds & ETFs

    Introduction To Money Market Mutual Funds

    Learn about the easiest way to benefit from money market securities.
RELATED FAQS
  1. How do you find out the price of a mutual fund?

    The easiest way to find out the price of a mutual fund is to look at its net asset value (NAV). NAV is the total value of ... Read Answer >>
  2. Why is it that when investors realize returns on a mutual fund, its price tends to ...

    Mutual funds have been in existence since 1924, when the first open-ended mutual fund was created. Since then, the market ... Read Answer >>
  3. Why do some closed-end mutual funds trade above or below their net asset values?

    Intuition tells us that a mutual fund's net asset value (NAV) (the net value of all assets within the mutual fund's portfolio ... Read Answer >>
  4. What is a mutual fund's NAV?

    Net asset value (NAV) represents a fund's per share market value. This is the price at which investors buy ("bid price") ... Read Answer >>
  5. How do dividends affect net asset value (NAV) in mutual funds?

    Understand how dividends affect the net asset value of mutual fund shares, and how this fits into the calculation of a mutual ... Read Answer >>
  6. You currently own a mutual fund with a Net Asset Value (NAV) of $11.25 ...

    The correct answer is d In mutual funds, the NAV is the total value of the fund's portfolio less liabilities. The NAV is ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center