By Kirsten Grind

Money-market mutual funds used to be boring: a little-thought-about place to park your cash.

But new rules recently passed by the Securities and Exchange Commission governing the $2.7 trillion industry have sparked proposed changes at two of the largest money-fund providers, Fidelity Investments and Federated Investors Inc. And more changes are likely before the rules take effect in October 2016.

As a result, investors used to ignoring that part of their portfolio might suddenly have to pay attention instead, say financial advisers and analysts.

The SEC regulations aim to prevent an investor exodus from money-market funds like the one that happened during the 2008 financial crisis, when the federal government had to step in with financial backing for the industry.

One requirement under the new rules is that the shares of money-market funds that cater to institutional investors and invest in corporate or municipal debt must float in value, like the shares of most other mutual funds. That’s a change from the stable $1-a-share value traditionally maintained by all money-market funds. The idea is that investors will be aware of changes in asset values as they occur and be able to adjust their holdings accordingly, rather than stampeding out of funds when they suddenly become aware that their shares aren’t worth $1.

Another big change is that all money-market funds that invest in corporate or municipal debt will be allowed to charge investors a fee to redeem shares when the funds are under pressure or temporarily block investors from withdrawing cash.

These rule changes won’t apply to funds that invest only in the debt of the federal government and agencies like Fannie Mae and Freddie Mac (FMCC).

In reaction to the new regulations, Fidelity said in February that it plans to convert its largest money-market fund, the $111 billion Fidelity Cash Reserves fund, from a prime fund — one that invests in both government and highly rated corporate debt — to one that invests only in U.S. government and agency debt. Some other Fidelity prime money-market funds are slated for the same conversion.

Federated, meanwhile, said some of its funds will begin investing only in debt that matures in 60 days or less, to make it easier to maintain a stable net asset value of $1 a share.

Here’s what investors need to know as changes in money-market funds continue to unfold.

1. Understand types of funds

Money funds can be divided into three categories according to their investments: prime funds; government funds, which invest in U.S. government and federal agency debt; and municipal funds, which invest in the debt of state and local governments.

The new rules will create another distinction: Many money funds now mingle the investments of institutional and individual, or retail, investors. But because the new rules make a distinction between institutional and retail investors, fund companies are working toward separate institutional and retail funds. Retail funds will be open only to individual investors and accounts where end users are individuals, but institutional funds will be open to both institutional investors and individuals.

Understanding all these distinctions is important because institutional funds will be subject to more rule changes than retail funds, and government funds will be subject to fewer changes than prime or municipal funds. Those differences in the new rules will drive the changes fund companies make in their funds’ investments and structure.

For instance, Nancy Prior, president of Fidelity’s fixed-income division, says the firm realized after extensive outreach to investors that a stable net asset value and no restrictions on withdrawing cash were most important to clients. We wanted to maintain those features, she says. And that’s why the firm plans to make Fidelity Cash Reserves a government fund — its value won’t have to float and Fidelity won’t be able to stand in the way of investors who want out.

2. Know what you want

Money funds are yielding little — currently an average of 0.03% a year, or $3 on a $10,000 investment, according to Crane Data LLC, a money-fund research company. But government and municipal funds typically yield even less than prime funds. That’s because prime funds are able to invest in a wider range of securities.

That leaves investors with a choice: Should they invest in a fund that could earn more but be more risky, or put money in a safer fund that will probably yield less? Many investors will confront that choice as their funds switch from prime to government funds.

Liam Hurley, a principal at Summit Financial Strategies Inc. a $900 million wealth manager in Columbus, Ohio, says he has about $115 million of client money invested in Fidelity Cash Reserves but isn’t concerned that the change to a government fund could mean the fund will yield less.

We want to be in funds that are going to be the highest quality and most liquid, and we’d give up yield to have those, he says.

Investors also should decide whether they care if a money fund floats like a typical mutual fund — meaning its value fluctuates every day — or if they would rather be in a fund with a stable net asset value. Remember that only institutional prime and municipal funds, which are currently open to individuals, will be required to float.

3. Watch the paperwork

Fidelity and Federated are also merging several of their money funds, meaning some funds will cease to exist.

Typically, this should be an easy process for investors, who will automatically be moved into the new fund, with no tax implications, fund companies say. But investors should make sure the new fund is investing in the same way. In the case of Fidelity, the funds being merged have very similar mandates, says Ms. Prior, except in one case where a prime fund will be merged into a government fund. It’s a simplification of the product lineup, she says.

Meanwhile, some of the coming changes at both fund companies are subject to shareholder approval, which means investors should be receiving a flurry of proxies from the funds in the coming months, asking them to vote on the various proposals.

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-Kirsten Grind; 415-439-6400; AskNewswires@dowjones.com

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03-11-15 0501ET