Compared with other forms of investment, money market funds have the following basic characteristics:
(1) Money market The fund is an open-end investment fund that specializes in money market instruments as its investment portfolio, with relatively stable returns and relatively small risks.
Money market funds have the general organizational form and basic characteristics of mutual investment funds, but money market funds are a type of investment fund that specifically invests in money market instruments. Due to the characteristics of short term and high liquidity, investors can add investment amount at any time, and can also withdraw from the fund at any time by issuing a check. Its flexibility is greater than that of general mutual investment funds. Money market funds are not as volatile as stock market funds and ordinary bond funds. Therefore, the capital gains generated by the money market fund asset portfolio are not large and the income is relatively stable. Because money market funds concentrate a large number of small funds and invest them uniformly in money market instruments with lower original risks, through scale combination, various money market instruments complement each other in terms of liquidity, thereby reducing the risk of investing in money market funds. down to a trivial level.
(2) The face value of fund units is fixed.
In order to provide investors with liquidity and convenience similar to quasi-currency, money market funds generally adopt the practice of converting each The transaction price of each fund unit remains fixed, for example, it always remains 1 yuan/fund unit, and a corresponding asset pricing and accounting model is established. The fund calculates fund income daily and regularly distributes it in the form of shares.The profits and losses recognized by the fund investment are carried forward to the account of the fund holder, and the changes in the fund holder's income are reflected through the increase or decrease in shares. Holders can obtain cash income by redeeming fund shares, issuing checks, etc.
(3) The net book value of the fund deviates from the actual value.
The actual value of the fund is determined by the market price of the money market instruments in which it invests, that is, the market interest rate. Fluctuations in interest rates will lead to changes in the actual value of the fund. If the market value of the fund is used as the net book value, it is not conducive to investors' cash management. In order to reduce the fluctuation of the net book value of money market funds, fund managers generally use the amortized cost method (Amortized Cost Method). When the fund initially invests, the actual cost of purchasing money market bonds is used as its net book value, and the investment premium or discount is used as the remaining balance of the bond. Amortization is carried out during the period, which increases or decreases the net book value of the fund. Using this method, from the perspective of investors, is similar to investing a stable principal and receiving guaranteed interest income in each period.
However, the disadvantage of this treatment method is that the net book value of the fund, which is constantly adjusted through amortization costs, deviates from the actual value. When this deviation reaches a certain level, The purchase or redemption of fund shares will cause investment losses to fund investors and fund companies. In order to solve this problem, according to the requirements of the U.S. Investment Company Act of 1940, money market funds must establish a shadow pricing mechanism (Shadow Pricing) to reflect the net value of fund units based on market prices. When the shadow price deviates from the fund's book price to a certain extent, usually set at 0.5%, the fund manager will adjust the investment based on the shadow price and adjust the fund's net book value to the market value to ensure that this deviation will not affect the fund's holdings. Substantial damage was caused to someone and the fund management company.
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