Low Volatility Net Asset Value (LVNAV) funds are a type of regulated money market fund designed to provide a stable and low-risk investment solution for short-term cash management. With daily or next-day liquidity and a steady Net Asset Value (NAV) of £1 per share under normal market conditions, LVNAV funds are a practical choice for businesses seeking to preserve capital, maintain liquidity, and earn yield.
The LVNAV structure was first introduced as part of the EU Money Market Fund Regulation (MMFR) in 2017 which is designed to enhance transparency, stability, and investor protection. This regulation created a framework for money market funds, including LVNAV funds, which combine the stability of Constant Net Asset Value (CNAV) funds with stricter regulatory controls, such as liquidity thresholds, diversification requirements, and regular stress testing.
LVNAV funds invest in high-quality, short-term instruments such as government securities, certificates of deposit, and repurchase agreements. These assets are selected for their high credit quality and short tenor to minimise risk and maintain stability. By limiting exposure to volatile instruments, LVNAV funds aim to preserve value while keeping cash accessible.
To ensure liquidity, LVNAV funds are required to hold a portion of their assets in highly liquid instruments that can be accessed within one or seven days. These measures, combined with strict diversification requirements, help LVNAV funds meet withdrawal demands quickly and consistently.
LVNAV fund units maintain stability through the use of amortised cost accounting, allowing investors to purchase and redeem units at a constant price of £1, provided the mark-to-market NAV remains within a 20-basis point collar of the constant dealing NAV.
LVNAV funds operate under the EU Money Market Fund Regulation (MMFR), which enforces strict guidelines to maintain stability and protect investors. These include requirements for liquidity, diversification, and stress testing. Below is a summary of the key regulatory guidelines:
| Requirement | Guideline |
| Liquidity | At least 10% of assets must be accessible within one day and 30% within one week. |
| Diversification | Limits on exposure to single issuers to reduce concentration risk. |
| Stress Testing | Regular testing to assess the fund’s ability to handle adverse market conditions. |
| Asset Quality | Investments must meet high credit standards, ensuring low risk of default. |
| NAV Stability | NAV remains stable at £1 per share unless the fund experiences market stress. |
LVNAV funds provide several key advantages for businesses:
The stable NAV structure and high credit quality provides principal protection, making these funds a secure option for surplus operational and strategic cash.
LVNAV funds are structured to provide quick access to cash on a same day (T+0) or next day (T+1) basis, accommodating businesses with variable cash flow needs.
While LVNAV funds prioritise capital preservation and liquidity, they also typically offer higher yields than traditional cash deposits, allowing treasurers to optimise returns.
LVNAV funds are suited for organisations that prioritise safety, liquidity, and yield in their cash management strategies. They are an effective solution for managing operational cash as well as strategic cash reserves, and provide treasurers with quick and predictable access to liquidity, making them an excellent tool for balancing immediate day-to-day liquidity needs with longer term financial objectives.
For organisations with a low tolerance for risk, LVNAV funds also offer stability and predictability for surplus cash, preserving principal while ensuring that funds remain productive. Their ability to provide returns that typically exceed traditional bank deposits makes them a compelling choice for treasurers looking to optimise returns in cash portfolios. Lastly, LVNAV funds reduce counterparty risk through diversification by spreading exposure across multiple high-quality instruments.
LVNAV funds provide an efficient and reliable solution for managing corporate cash balances, combining stability, liquidity, and competitive yields to support effective cash management. With a stable £1 Net Asset Value and strict regulatory safeguards, these funds preserve capital while often delivering returns superior to traditional cash deposits. This blend of security, accessibility, and enhanced yield makes LVNAV funds a valuable tool for corporate treasury strategies focused on optimising cash performance.
