Why are money market funds closed to new investors?
Funds generally close for one of two reasons. The fund may be closing due to low performance or low demand. Inversely, the fund may be receiving substantial demand with excessive inflows. If a fund is only closing to new investors, it is likely the fund is seeking to minimize its inflows while still operating actively.
The biggest reason why a mutual fund company will decide to close its fund's doors is that the fund's strategy is being threatened by the fund's size. The decision to close a fund's doors to new investors could be to protect existing shareholders from stagnant or declining fund performance.
While money market funds aren't ideal for long-term investing due to their low returns and lack of capital appreciation, they offer a stable, secure investment option for individuals looking to invest for the short term.
A money market fund is an open-ended fund that invests in short-term fixed-income securities such as US Treasury bills and commercial papers. Money market funds seek to limit exposure to losses from credit, market, and liquidity risks.
Key takeaways
Disadvantages of money market accounts may include hefty minimum balance requirements and monthly fees — and you might be able to find better yields with other deposit accounts.
Diversified management investment companies have assets that fall within the 75-5-10 rule. A 75-5-10 diversified management investment company will have 75% of its assets in other issuers and cash, no more than 5% of assets in any one company, and no more than 10% ownership of any company's outstanding voting stock.
Funds can close for various reasons, but primarily they close because the investment advisor has determined that the fund's asset base is getting too large to effectively execute its investing style. A fund can cease to exist if it fails to perform and investors withdraw their funds.
However, this only happens very rarely, but because money market funds are not FDIC-insured, meaning that money market funds can lose money.
There is no direct way to lose money in a money market account. However, it is possible to lose money indirectly. For example, if the interest rate you receive on your account balance can no longer keep up with any penalty fees you may be assessed, the value of the account can fall below the initial deposit.
Money market funds are likely to keep growing if the Fed holds rates at their current level, or raises them further. I've used money market funds on and off for decades with no problems, and consider them to be fairly — though not entirely — safe.
Is it wise to invest in money market funds?
The takeaway. Money market accounts are a great option if you're looking to maximize the amount of interest you can earn in a low-risk setting. You'll have easy access to your money, your account is insured up to $250,000, and it's a great financial tool to help you reach your short-term savings goals.
Vanguard Treasury Money Market Fund
This fund only invests in US Treasuries and repurchase agreements insured by the federal government, making it among the safest in a category of relatively safe investments. The weighted average maturity of the fund's holdings is 43 days.
The 2008 financial crisis triggered a money market crisis that included the failure of the original and oldest U.S. money fund, the $62 billion Reserve Primary Fund, which broke the one dollar net asset value mark (known as breaking the buck) in September 2008.
A money market fund might have once offered the highest return for your buck. But insured money market and savings accounts may offer competitive rates without the management fees, and with federal insurance for up to $250,000. So, be sure to compare the terms and rates with each.
How safe are money market funds? There is little risk associated with money market funds. The U.S. Securities and Exchange Commission (SEC) mandates that only the highest-credit-rated securities are available in money market funds.
Some money market accounts come with minimum account balances to be able to earn the higher rate of interest. Six to 12 months of living expenses are typically recommended for the amount of money that should be kept in cash in these types of accounts for unforeseen emergencies and life events.
The Fund is closed to new accounts for investors not enrolled in Vanguard Flagship Services® or Vanguard Personal Advisor Services®.
A fund closing occurs when an investor signs the fund's subscription documents and the fund's general partner (GP) countersigns them. At this point, the investor formalizes their pledged capital commitment and becomes a limited partner (LP) in the fund.
The Fidelity Series Blue Chip Growth Fund falls within Morningstar's large growth category. The fund is currently closed to new investors.
Wait for the payout: If you retain your shares until the fund closes, you'll receive a cash distribution after the remaining assets have been liquidated.
When should you exit a fund?
If a fund consistently underperforms over multiple periods and fails to deliver satisfactory returns, consider exiting the investment. Research and select funds with a similar investment objective but better track records and performance history to redirect your investments.
If a fund is wound down then shareholders are forced to sell their investments at a time that is not of their choosing, which can mean that they suffer heavy losses. In the case of Neil Woodford's Equity Income fund, investors have faced a four-year wait but could receive up to 77 per cent of their money back.
Both money market accounts and money market funds are relatively safe, low-risk investments, but MMAs are insured up to $250,000 per depositor by the FDIC and money market funds aren't. Banks use money from MMAs to invest in stable, short-term securities with minimal risk that are liquid.
Your assets are protected at Schwab. We work hard to make Schwab a secure and safe place for your money. Whether you hold securities like stocks, bonds, mutual funds, exchange traded funds, or money market funds in a Schwab brokerage account, or cash deposits in a Schwab Bank account, we have your assets protected.
One of the biggest disadvantages of a money market account is that some financial institutions may put a cap on how many convenient withdrawals you can make each month. The Federal Reserve once limited consumers to six per month, though this rule was phased out in 2020.
