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(Adds Ant comments, context)
By Cate Cadell
BEIJING, May 26 (Reuters) - Yu'e Bao, a money market fund under China's Ant Financial, will impose a cap on individual accounts at 250,000 yuan ($36,475), amid tightening regulatory oversight of China's financial markets.
The cap, which comes into effect from May 27, will apply to new investments but not existing accounts, Tianhong Asset Management Co Ltd, which is majority owned by Ant Financial and manages the fund, said in a statement on its website.
Set up in 2013, Yu'e Bao, which translates literally as "leftover treasure", had 1.14 trillion yuan ($166.27 billion) of funds under management at the end of the first quarter, making it one of the biggest money market funds in the world.
Ant Financial, which confirmed the cap, is the payment affiliate of Alibaba Group Holding Ltd.
The move comes as China looks to curtail financial risks amid growing concerns over high levels of debt.
Moody's downgraded China's credit ratings this week for the first time in nearly 30 years, saying it expected the financial strength of the economy would erode in coming years as growth slows and debt continues to rise.
Beijing has made financial risk a top priority this year following a sharp rise in leverage in the economy, but tighter control of bank lending risks pushing borrowers towards the opaque, often less regulated, shadow banking sector.
Chinese regulators have issued a flurry of measures to clamp down on the shadow banking sector in recent months, while the central bank has raised short-term interest rates.
Following its launch, Yu'e Bao initially had a cap of one million yuan, but this was removed at some point, leaving it with no maximum or minimum limit on accounts. It has around 325 million investors, the vast majority of which are individuals.
An Ant Financial spokeswoman told Reuters the decision was made by Tianhong and said that it was related to the fund's product placement, targeting smaller individual investments. The average investor contributes 3,800 yuan, she said. ($1 = 6.8540 Chinese yuan renminbi) (Reporting by Cate Cadell and Beijing Monitoring Desk; Editing by David Clarke and Jane Merriman)