Broke The Buck

Posted in Finance, Accounting and Economics Terms, Total Reads: 215
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Definition: Broke The Buck

It refers to the situation where the Net Asset Value(NAV) of a money market fund drops below $1 per share.

 

To understand this, let us first understand what a money market fund is:

A money market fund is one of the variants of mutual fund. A Mutual fund, in turn, is a type of investment vehicle comprising of a pool of funds collected from a large number of investors, with the aim of investing in stocks, bonds, money market instruments etc. Mutual funds provide the benefit of diversification to the investor, which he himself may not have been able to afford. Also, mutual funds have different investment objectives to cater to different customers’ needs.

 

A money market fund consists of high liquidity, short term securities and is a kind of low risk, low return investment. Money market funds are always worth $1. Breaking the buck, then refers to their Net Asset Value falling below $1 per share.

 

NAV of a fund= Fund’s assets- Fund’s liabilities

 

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