What is the liquidity fund?
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Fund liquidity is a mutual fund that invests in a diversified portfolio of securities, bonds and capabilities with a high credit rating for short -term investments. Compared to the traditional bank account, the Liquidity Fund offers investors and treasurers to the company's cash management, which provides a higher return level while maintaining largely liquidity and standard account security. The tools in which the liquidity fund can invest include the accounts of the Ministry of Finance, commercial paper, time deposits, banknotes financial floating and money market accounts. Most liquidity funds allow access on the same day, allowing investors to maintain invested funds for as long as possible, but if necessary, remove them to meet the obligations. However, in relation to investments in shares or bonds, the promised return on the liquidity fund will reduce in exchange for lower risk and risk of liquidity.
The price per share in the liquidity fund differs in proportion to the value of the net asset of the fundu (opposite). The fund manager determines the visiting the difference in the assets and liability of the liquidity fund according to the number of outstanding shares. Calculated at the end of each working day, Navs indicates the power of the liquidity fund. New investors buy shares directly from the fund itself and pay the current NAV for each share. On the contrary, investors receive a fair part of the fund asset when they sell their shares, based on the latest NAV.
In investing in liquidity funds, risks should be considered. First, because liquidity funds are securities, investors can lose the entire main investment. Although fund managers are trying to keep NAV per US dollar per share, funds sometimes fall below this value called "Breaking the Buck". This can cause redemption from a large scale to the fund, with each subsequent seller receiving an increate lower price per share. Most companies that issue liquidity funds, however, retains its value with its own resources if the price per share temporarily falls.
Further potential disadvantages of liquidity funds include the fluctuation fund and the risk of inflation due to low return. Earnings may not be achieved if the fund rate drops. Inflation can be eaten on a director for a long -term investment. For this reason, the aim of liquidity funds is to invest in instruments with short duration from 60 days to 13 months.
In 2010, the United States Securities and Stock Exchange Commission revised the 2A-7 rule, with changes that alleviated the effects of the net value of assets that drop below $ 1 per share. Rule changes reduce medium risk securities allowed in portfolio to only three percent. Ten percent of the assets of the fund must be daily assets, while 30 percent must be weekly assets. Fund boards can temporarily suspend the purchase of market stress times. Other provisions require a greater degree of transparency in the publication of the fund compared to the previous preiiSy.