Broke The Buck

AAA

DEFINITION of 'Broke The Buck'

When a money market mutual fund's net asset value (NAV) drops below $1 per share. Money market funds aren't federally insured like bank deposits; therefore, fund assets have an implied promise to preserve capital at all costs and preserve the $1 floor on share prices. These funds are regulated by the Securities and Exchange Commission and Rule 2a-7 restricts what they can invest in based on credit quality and maturities with the hope of ensuring principal stability.

INVESTOPEDIA EXPLAINS 'Broke The Buck'

Breaking the buck is an extremely rare event that money market fund managers always want to avoid, but it can occur if the underlying fund investments (which are generally assumed to be completely safe) significantly drop in value. This can happen if the underlying investments suffer large losses, such as defaults or strong moves in interest rates. Several funds reached or approached this critical point (from an investor faith standpoint) during the credit crisis that occurred as a result of a drop in mortgage-related assets beginning in 2007.

RELATED TERMS
  1. Money Market Fund

    An investment fund that holds the objective to earn interest ...
  2. Securities And Exchange Commission ...

    A government commission created by Congress to regulate the securities ...
  3. Subprime Loan

    A type of loan that is offered at a rate above prime to individuals ...
  4. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
  5. Yield

    The income return on an investment. This refers to the interest ...
  6. Federal Deposit Insurance Corporation ...

    The U.S. corporation insuring deposits in the U.S. against bank ...
RELATED FAQS
  1. Under what circumstances would someone enter into a repurchase agreement?

    In finance, a repurchase agreement represents a contract between two parties, where one party sells a security to the other ... Read Full Answer >>
  2. Are so-called self-offering and self-management covered by "Financial Instruments ...

    As the Financial Services Agency (FSA) explains, self-offering of interests in collective investment schemes falls under ... Read Full Answer >>
  3. What happens when I want to sell my A-shares of a mutual fund?

    Typically, commissions or other sales charges may apply when a mutual fund is sold. This is an important factor in deciding ... Read Full Answer >>
  4. What does the information ratio tell about the design of a mutual fund?

    The information ratio can tell an investor how well a mutual fund is designed to deliver excess or abnormal returns as well ... Read Full Answer >>
  5. Is it better to buy A-shares or a no-load mutual fund?

    Mutual funds and other pooled investments are popular among investors because they provide a level of diversity and professional ... Read Full Answer >>
  6. Are Class A mutual funds a better choice for long-term investments or short-term ...

    A shares are a particular class of mutual funds available to investors, usually through financial advisers. This class of ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Why Money Market Funds Break The Buck

    These funds are noted for their safety in a rough market. Read on to find out why.
  2. Mutual Funds & ETFs

    Money Market Mutual Funds: A Better Savings Account

    An good alternative to the traditional savings account is the money market mutual fund. It's easy, safe and has better returns.
  3. Options & Futures

    Do Money-Market Funds Pay?

    This investment provides security, but its returns may not be adequate for long-term investors.
  4. Insurance

    Breaking The Buck: Why Low Risk Is Not Risk-Free

    Money market funds have been assumed to be safe investments, and they are - but only to a point.
  5. Bonds & Fixed Income

    The Money Market: A Look Back

    Learn how past inflationary periods can predict future real rates of return for cash investments.
  6. Retirement

    The Money Market

    If your investments in the stock market are keeping you from sleeping at night, it's time to learn about the safer alternatives in the money market.
  7. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  8. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  9. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.
  10. Professionals

    Worried About Stocks? Try on Convertibles

    Convertibles are a good hedge against equity market risk (if you're o.k. with losing a bit of upside potential).

You May Also Like

Hot Definitions
  1. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  2. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  3. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  4. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  5. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  6. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!