How do money market funds seek to maintain a stable $1.00 net asset value?
Money market funds are stringently regulated by the U.S. Securities and Exchange Commission (SEC) pursuant to Rule 2a-7 under the Investment Company Act of 1940. Rule 2a-7 includes several conditions intended to stabilize a fund’s share price at $1.00. These conditions limit risk in a money market fund’s portfolio by governing the credit quality, diversification, and maturity of money market fund investments. • Credit Quality: Money market funds are required to hold high-quality securities. For taxable money market funds, at least 95 percent of a money market fund’s assets must be invested in securities that received the highest short-term rating from two NRSROs (unless only one NRSRO rates the security or issuer of debt); or securities of comparable quality. Not more than 5 percent of a money market fund’s investments may be in securities that received the second-highest short-term rating categories. • Diversification: Money market funds must maintain a diversified portfolio. This req
