Money market funds are strictly 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 was established to establish numerous conditions intended to stabilize a fund’s $1.00 NAV. 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.
  • Diversification: Money market funds must maintain a diversified portfolio. For instance, in general, money market funds may not invest more than 5 percent of assets in the securities of any single issuer, with the exception of securities issued by the federal government.
  • Maturity: Money market funds must invest in securities that are considered short-term. In general, money market funds cannot acquire a portfolio security with a remaining maturity of greater than 397 days. In addition, a money market fund’s weighted average maturity must not exceed 90 days.
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