Money market funds obtain their AAA rating either from Moody's Investor Services or Standard & Poor's (S&P) and sometimes carry both ratings.

The overall credit quality of the portfolio is one of the first factors called into question. S&P sets a universal rule by insisting all securities be rated at least A1 and the majority be rated A1+. Moody's criteria differs in that the funddoes not have to operate in a two-tier system and can invest in just the one category of P1 paper or A2 long-rated instruments or higher. The credit risk as a whole needs to match or be less than a one-year AAA bond.

Risk of interest rate fluctuations need to be countered by only in-vesting in short-term instruments, and the weighted average portfolio maturity restriction for both agencies is 60 days or less, with the fund only given a 0.5% loss allowance in extreme conditions.

S&P states the fund's liquidity levels need to be structured as to allow redemption for at least 50% of shareholders should they wish to withdraw at a given time, an area where new funds need to be extra vigilant. A new fund will have a significantly higher percentage of the fund in very short maturities to meet redemptions. Moody's is less stringent in this area taking the funds on a case-by-case bas-is, depending on the type of in-vestors in the fund and their individual needs. The variance in liquidity levels can span between 15% to 30-40% but the funds also need to have available alternative sources of liquidity as back-up such as repo channels.

The fund's custodian needs to be of an acceptable credit quality, even though theoretically the fund's assets will be segregated from those of the custodian (there is no guarantee that in the case of a bank liquidation, the fund's as-sets would escape unharmed). As there are very few AAA banks re-maining, S&P states the custodian needs to hold at least an A2 short-term rating based on the fact that such a custodian is unlikely to default in a short period of time. By Moody's ruling, there is no specific rating needed by a custodian, though it needs to be at least of investment grade". Some custodians used are unrated, and in these cases Moody's will carry out an internal assessment and allocate its own rating."