But a drop in the unrounded net asset value of more than one-half of one percent causes a money fund to “break the buck”, a scenario in which losses, at least in theory, would be passed along to the fund’s investors. However, fund sponsors historically have absorbed losses whenever necessary to prevent funds from breaking the buck, with only two exceptions.
Even though they had no legal obligation to do so, sponsors voluntarily supported their funds more than 100 times between 1989 and 2003, presumably because allowing a fund to break the buck would have damaged the sponsor’s reputation and franchise. This tendency was well understood by investors.