Money markets: low risk, secure | Fin24
In partnership with
  • Ace vs. SA Reserve Bank

    The ANC secretary general has again weighed in on the central bank's mandate.

  • Mandela Day

    Nationalisation, privatisation and land: What Mandela told business in 1990 still resonates today.

  • Fin24’s newsletter

    Sign up to receive Fin24's top news in your inbox every morning.


Money markets: low risk, secure

Oct 06 2010 14:44
A large proportion of investors, both individuals in the retail market and institutions, is invested in money market funds. In terms of monthly investment inflows it’s often the most popular unit trust sector.

But who should be using money market funds and why?

Unfortunately many retail investors are in these funds for the wrong reasons, often because of an obsessive fear about losing capital.

Essentially, money market funds are a fairly short-term investment. This is how institutions use them, parking excess cash to get better rates than in the bank for a future project, perhaps a possible acquisition or capital spending project.

Retail investors tend to scamper into money market funds, or get put there by financial advisers, when they are nervous and unsure about financial markets. There’s merit to this, money market funds are the lowest risk unit trust sector and have the lowest management fees.

But often many retail investors just stay in money market funds because this makes them feel safe, instead of drawing up a diversified investment plan.

At the time of writing about a third of the retail investors’ market was in money market funds, according to figures from the Association for Savings and Investment SA (Asisa).

Money market funds are a comfortable investment but over the longer term they will not always provide very good returns, being largely dependent on the interest rate.

At times money market funds have not provided a real return, so investors’ money is being eroded compared to the rate of inflation.

As part of a diversified investment portfolio, money market funds are excellent. An investor might want part of the portfolio to be in cash and might want to earn some income and this is where money market funds can be used very effectively.

Also in times of market uncertainty, for instance when the equities market is volatile and investors are nervous about a market crash.

But then it’s a short-term investment as the investor formulates an overall view and perhaps plans a new investment strategy.

Money market funds can also be used if there’s a particular investment goal in sight. But not for more than a few years at the most.

 - Finweek

investment  |  money market


Read Fin24’s Comments Policy publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Company Snapshot

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

FaceApp has been at the centre of a debate on data security. What is your view?

Previous results · Suggest a vote