What are the risks of money market funds?

Question by g teahann: What are the risks of money market funds?
For those money market mutual funds where they normally maintain $ 1 share price, what are the risks that you need to be aware of as the share price can certainly drop below $ 1 under non-normal market situations?

Best answer:

Answer by Banker John
Money Market funds are perceived to be risk free from a principal standpoint. While the value of Money Market funds can and occasionally do fall below $ 1 per share, the issuing institution almost always does a “true-up” on the fund, depositing their own money into the fund to bring the price back to $ 1 per share. If an institution did not, they would suffer irreparable reputation damage for that fund and would see mass withdrawals. The most remarkable example of this occurred during the financial crisis of 2008, when it was rumored the State Street’s Money Market funds fell below $ 1. The stock price of State Street dropped from approximately $ 60/share to $ 30/share during that day’s trading (the date of this event was September 18, 2008). Trading was halted in the stock, and the Company’s CEO made a public pronouncement that their Money Market funds were indeed safe and had a $ 1 share value. At the opening of the market the next morning, State Street’s stock price opened back at or near the $ 60 price. In fact State Street did have to contribute their own funds to several of their Money Market funds to get the price back to $ 1.

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