I searched few articles and read that MMFs manage to keep their NAV equal to 1 but never understand how they do it. Can you please explain it in simple terms?

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The Wikipedia explanation suggests that:

"With net asset values reported flat at $1.00, despite the market value variance of the actual underlying assets, an impression of rock solid stability is maintained. To help maintain this impression, money market fund managers frequently forgo being reimbursed legitimate fund expenses, or cut their management fee, on an ad hoc and informal basis, to maintain that solid appearance of stability."

For something more technical, read the first few pages of this:


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