Getting to grips with money market funds
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.