$12.3 billion fund closed by Boston-based Putnam

Boston-based Putnam Investment just closed its $12.3 billion market fund to limit losses to its investors according to a Washington Post report.

Officials at Putnam say that they would transfer assets to a fund managed by Pittsburgh-based Federated Investors Inc.

An interesting point to note is, the money-market fund is open only to institutional investors with a minimum commitment of top dollars. The current financial turmoil triggered jittery investors to reign in their investments.

As an offshoot of that effort, it caused a large number of redemptions. Putnam thought that it was in the best interest of all the stakeholders to, spread the losses equally, thus forcing them to close the fund.

The cause for concern is that the money-market fund is considered by many to be a safe bet, akin to holding a secure bank account. Putnam may not be the only money-market fund that is surprised by these development.

The article mentions that by mid-September there were many investors who pulled-out about $80 billion from these funds. So there may be many other fund managers who are fretting over their assets. This would indirectly effect the banking sector and other industries, as they depended on the money-market fund to raise easy capital.

Historically, money-market funds have always attracted highest rating from bodies like Standard & Poor and Moody's. So much so that this is only the second time in history that money-market funds have caused losses to investors.

Though the independent investor has little to worry, it might be a cause for concern for the investment community at large.

Keep cash around during dark fiscal times

The southward-swing of the stock market is good news for cash investors.

Traditionally, financial experts suggest keeping 5% to 10% of your total assets in cash. Given this year's stock market plunge, many financial experts recommend increasing your cash assets dramatically.

So how much cash should you invest? This is a personal decision, based on factors such as retirement age, your current life stage and the risk of the investment. Here are some ways you can manage your cash:

Deposit Accounts: This is a simple cash management tool and should be used for basic needs only. Deposit accounts have the lowest yield of any investment. Find a bank with free checks that offers convenience and safety. Keep an eye out for hidden fees and pay attention to the Federal Deposit Insurance Company (this is what will save you if the banks fail).

CDs and Brokered Deposits: These accounts should be used if you don't need your money on hand, but you would like to put your money in a safe place. Banks set their own interest rates for Certificates of Deposits, and there are currently 6 institutions offering one year interest rates of 4.25% or better.

Money Market Funds: Money funds have no government guarantees. However, money fund managers never let their funds go down the drain, because their reputations are placed on the line. Money markets have low yields and are generally safe and liquid.

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