Broker Check
Protecting Your Investments in Money Market Funds

Protecting Your Investments in Money Market Funds

November 09, 2023

Key Takeaways:

  • What's the situation?
    The SEC has introduced new measures in 2023 to safeguard money market funds (MMFs) and address challenges identified during the COVID-19 pandemic.

  • How does it affect me?
    The changes enhance investment security, particularly affecting institutional prime and municipal MMFs with mandatory liquidity fees. However, individuals using government or retail prime MMFs remain mostly unaffected.

  • What's SageView's stance?
    SageView recognizes the importance of these changes in safeguarding investments and acknowledges potential impacts on different MMFs, emphasizing the need for individual assessment.

  • What should I do?
    Consult your advisor to assess exposure, especially if using institutional MMFs. Recognize the increased stability provided by discretionary fees being less likely due to enhanced liquidity buffers. 



The US Securities and Exchange Commission (SEC) has introduced new measures to safeguard investments in money market funds. These changes, adopted in June 2023, are aimed at making MMFs more resilient to short-term market risks and providing better protection for individuals’ investments.

What are money market funds? Money market funds are a type of mutual fund that invests in short-term debt securities. They offer a safe and stable way for investors to park their money while earning a bit of interest. Depending upon your liquidity needs, you may hold one or more MMFs within your various investment accounts.

Why the change? Over time, the SEC has updated its rules for MMFs to keep up with changing markets and risks. The 2008 financial crisis prompted the SEC to tighten rules to ensure MMFs could handle stress. In 2014, the rules changed again to protect investors from market shocks.

Key changes from 2014:

  • Categories: MMFs were divided into three categories based on what they invest in – government, prime, and municipal funds.
  • Floating value: Institutional prime MMFs were required to transact at a floating value instead of the traditional $1 per share. Retail prime and government funds kept the $1 value.
  • Liquidity fees and redemption gates: Non-government MMFs were allowed to impose fees or gates (i.e., limits on withdrawals) in certain situations.


What’s different now? The 2023 changes address issues that emerged during the COVID-19 pandemic. Investors pulled money from MMFs and rushed to cash, causing concerns. Also, some of the 2014 rules meant to prevent panic seemed to make it worse. The major 2023 changes are as follows:

  • Redemption gates: MMFs can no longer impose limits on withdrawals, allowing more flexibility for investors in accessing funds.
  • Mandatory liquidity fees: Institutional prime MMFs and municipal funds are now required to impose a fee if daily redemptions exceed 5% of the MMF’s assets.
  • Discretionary liquidity fees: All MMFs may now impose discretionary fees even if liquidity issues are absent.
  • Increased liquidity buffer: All MMFs must now hold 30% and 50% in daily and weekly liquid assets, respectively.
  • Reverse distributions: MMFs that transact at $1 may now reduce the number of shares outstanding in the event of negative interest rates.


What’s the plan? The new rules will be rolled out gradually over the next year. MMFs have a transition period to adjust to these changes. Within 12 months, the new liquidity fee framework must be in place. Other adjustments related to calculations and portfolio requirements need to be made within 6 months.


What might this mean for you? These changes enhance your investment security during market challenges, further safeguarding your assets. While institutional prime and municipal MMFs are affected by mandatory liquidity fees, individuals using government or retail prime MMFs will be unaffected. High-net-worth individuals or those investing through specific platforms may encounter institutional MMFs; consult your advisor if you have additional questions regarding MMFs in your portfolio. Additionally, the implementation of discretionary fees is possible for all MMFs, but increased liquidity buffers make this less likely, providing added stability to your investments.

An investment in the fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund
seeks to preserve your $1.00 per share, it is possible to lose money in the fund.