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How does a fund maintain a stable NAV?

April 26, 2017fund maintain NAV STABLE

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How does a fund maintain a stable NAV?

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A money market fund provides investors a stable $1.00 NAV by using “amortized cost” to value its portfolio securities. Amortized cost is the book price of a security—the price a fund pays for a security, as adjusted over time for accounting changes in any discount or premium. Money market funds use amortized cost, rather than market value, to value their securities when calculating NAV. The Securities and Exchange Commission (SEC) allows a money market fund to use the amortized cost method only if the fund follows Rule 2a-7 under the Investment Company Act of 1940.