Dear Dr. Don,
I recently transferred a portion of assets in a mutual fund in my company 401(k) to a money market mutual fund in the same 401(k). I understand the net asset value, or NAV, is always supposed to be $1. However, the purchase price of shares in the fund is listed as over $11 each. Shouldn't the purchase price be $1 a share? Now my financial software shows a huge loss. Has there been a mistake?
-- Chris Conundrum
As you point out, the net asset value for a money market mutual fund should always be $1. When a money market fund "breaks the buck" to the downside, it creates quite a stir because these funds are supposed to be invested in short-term debt securities that don't have much risk to principal. There shouldn't be any upside appreciation because that shows up in the fund's yield, not its NAV.
There has been some discussion about allowing the NAV of money market mutual funds to float rather than to be anchored at $1. The Bankrate feature "Money market funds await new rules" discusses a fund planned by Deutsche Asset Management that would have a starting NAV of $10 a share.
Talk to your plan provider about your investment in the fund and ask about the NAV issue. You'll know from that discussion whether you own a new breed of money market fund, are invested in something that's not a money market fund or need to make a correcting entry with your financial software.
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