Get­ting to grips with money mar­ket funds

Finweek English Edition - - MONEY - BY SHAN­DUKANI MU­LAUDZI

Risk- averse i nvestors want­ing to re­tain t he l iq­uid­ity of their cap­i­tal for the short term, with­out miss­ing the op­por­tu­nity to grow, should con­sider money mar­ket funds. They are low-risk in­vest­ments that pro­vide above­inf la­tion re­turns and their liq­uid­ity means that your money is ac­ces­si­ble when you need it. This makes money mar­ket funds an ideal place to in­vest your emer­gency cash, short­term sav­ings, or money that is ‘ in-be­tween’ in­vest­ments.

An­sie van Rens­burg, head of money mar­ket f unds at Stan­lib, says it is im­por­tant that in­vestors know the dif­fer­ence be­tween a money mar­ket fund and a money mar­ket ac­count.

“A money mar­ket f und is a unit t r ust i nvest­ment where your money is man­aged by a team of in­vest­ment pro­fes­sion­als who mon­i­tor in­ter­est rate and credit risks,” Van Rens­burg says.

By in­vest­ing in a money mar­ket fund through an as­set manager, you will have ex­po­sure to un­der­ly­ing as­sets at dif­fer­ent banks, such as ne­go­tiable cer­tifi­cates of de­posits with banks. Money mar­ket funds are not al­lowed to in­vest in bonds or stocks, and can only take ex­po­sure to money mar­ket in­stru­ments with a max­i­mum ma­tu­rity of 13 months.

Money mar­ket ac­counts, on t he other hand, are in­vest­ments held wholly with a spe­cific bank, mean­ing you are fully ex­posed to that par­tic­u­lar bank’s risk.

“In a money mar­ket f und, ac­cord­ing to t he FSB [Fi­nan­cial Ser­vices Board] and the Unit Trust Act, you can­not hold more than a 30% ex­po­sure to any sin­gle bank. This makes them less risky,” says Van Rens­burg.

Money mar­ket funds are ben­e­fi­cial in an un­cer­tain eco­nomic en­vi­ron­ment and are one of the safest in­vest­ment op­tions for con­ser­va­tive in­vestors. They typ­i­cally also earn a bet­ter rate than money mar­ket ac­counts. Stan­lib’s money mar­ket fund is cur­rently pay­ing 6.2%, com­pared with 4.25% paid on a Stan­dard Bank call ac­count.

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