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The worst losses have been suffered by the £84m F&C Sterling Enhanced Cash fund, followed closely by Threadneedle's £363m UK Money Securities fund.

Over three months to 22 September, the F&C fund lost 4.3 per cent against the sector average of 0.5 per cent, while the Threadneedle fund lost 0.5 per cent.

Over one year, the F&C fund lost 0.9 per cent against the sector average of 3.5 per cent. Over the same period, Threadneedle fund lost 3.2 per cent.

These and other negative performances have come as a blow to funds that have been seen as a safe haven for investors and an ultra-safe alternative to cash.

During years of easy credit and abundant liquidity, many investors put cash in various high-yielding money market funds in the belief they offered the same safety as deposits, but with additional basis points.

But the credit crisis and the collapse of Lehman Brothers cast these returns into doubt, with the US-based Reserve Fund's Primary portfolio losing 60 per cent over the week starting 15 September.

Other recent underperformers in the sector include the £116m F&C Money Markets, the £54m Invesco Perpetual Money and the £310 Pru Maximum Income funds.

All these funds lost money over three months to 22 September.

Gavin Haynes, investment director at Bristol-based IFA firm Whitechurch Securities, said: "You do expect a high degree of security when investing in money market funds, so certainly it is disappointing to see short-term losses.

"It is important investors be aware they are not secured - they will fluctuate. Certainly, we would expect the ones that display above-average volatility in the short term to deliver much better returns in the medium to long term."

A spokesperson for Threadneedle attributed the fund's poor performance to its holding of floating-rate notes, which account for approximately 33 per cent of its value, saying the prime impact of the credit crunch on the asset-backed FRN market has been "one of liquidity and risk aversion rather than fundamental credit quality".

The spokesperson added that the deteriorating economic background that has affected all markets has impacted the fund's recovery, "which in turn has effected the fund's recent performance".

Invesco Perpetual declined to comment, while spokespeople from F&C and Prudential were unavailable.