Money Market Funds (MMFs) for Short-term and Risk-averse Investors

A preference for money market funds (MMFs) as short-term investment vehicles is emerging.
A few years ago, most Kenyans didn’t go further than banks when looking for safe options to save their money and earn interest. This is no longer the case. While banks provide their clients safety, current and savings accounts offer low-interest rates.
MMFs typically mimic bank accounts, but as opposed to direct investment in specific asset instruments, they benefit the investor with portfolio diversification, liquidity, economies of scale, fund manager’s expertise, principal preservation and the power of compounding interest.
In Kenya, MMFs rival banking options by offering high returns, fund protection and the ability to withdraw one’s funds and make investment top-ups anytime. Money market funds are managed by collecting investor funds into a common pool called a custodial account and hiring a professional fund manager, a trustee and an external auditor, each with distinct roles towards delivering a specific investment objective as established for the scheme.
They are classified as Collective Investment Schemes alongside other trust funds and mutual funds. These schemes are licensed and regulated by the Capital Markets Authority (CMA) under the Capital Markets Act. Cap. 485 A, 2001.
In August 2019, the weighted average growth in assets under management (AUM) for money market funds for the H1’2019 results, which stood at 28.2%, compared to banks’ deposit growth that stood at 12.6% for the same period.
However, it is worth noting that money market funds substantially contributed to the growth of banks’ deposits during this period. The growth of the weighted average in assets of money market funds can be attributed to an increased subscription as a result of higher effective annual yields registered by individual fund managers between 5% – 11% for the last one year.
Besides, there is principal preservation for conservative investors with a low-risk profile, tax benefits, and liquidity that suits short-term investors and millennials. These features are inherent from the underlying assets that range from, high-quality, short-term debt instruments to related cash equivalents. These assets include an allocation to government securities mostly T-Bills, term deposits in banks, and selected commercial papers.
This unique cocktail of investment classes has made money market funds one of the best low-risk and yet high-return investment options, the world over.
In Europe, money market funds are categorized into two segments, largely attributed to the pricing models. Funds using Variable Net Asset Valuation (VNAV) are mostly French funds in EUR denominations.
According to the 2018 Money Market Report by Deutsche Bank, these funds account for 43% of the total market share while the remaining 57% market segment accounts for the funds using Constant Net Asset Valuation (CNAV) most of which are domiciled in Ireland and Luxemburg in GBP and USD denominations. In Kenya, the money market fund pricing model is the Constant Net Asset Valuation (CNAV) where one unit is equivalent to one Kenya shilling.
Looking into the future, the role of money market funds as an intermediary between financial and non-financial sectors in Kenya, cannot be overlooked. Most importantly, money market funds will continue helping investors in tax-planning as a result of the 15% tax advantage, high returns and risk reduction as a result of investment diversification and capital preservation.
Written by Michael Obaga
Michael Obaga is a Financial Advisor at Cytonn Investments.
Email: mobaga@cytonn.com
- January 2025 (118)
- February 2025 (112)
- January 2024 (238)
- February 2024 (227)
- March 2024 (190)
- April 2024 (133)
- May 2024 (157)
- June 2024 (145)
- July 2024 (136)
- August 2024 (154)
- September 2024 (212)
- October 2024 (255)
- November 2024 (196)
- December 2024 (143)
- January 2023 (182)
- February 2023 (203)
- March 2023 (322)
- April 2023 (298)
- May 2023 (268)
- June 2023 (214)
- July 2023 (212)
- August 2023 (257)
- September 2023 (237)
- October 2023 (264)
- November 2023 (286)
- December 2023 (177)
- January 2022 (293)
- February 2022 (329)
- March 2022 (358)
- April 2022 (292)
- May 2022 (271)
- June 2022 (232)
- July 2022 (278)
- August 2022 (253)
- September 2022 (246)
- October 2022 (196)
- November 2022 (232)
- December 2022 (167)
- January 2021 (182)
- February 2021 (227)
- March 2021 (325)
- April 2021 (259)
- May 2021 (285)
- June 2021 (272)
- July 2021 (277)
- August 2021 (232)
- September 2021 (271)
- October 2021 (304)
- November 2021 (364)
- December 2021 (249)
- January 2020 (272)
- February 2020 (310)
- March 2020 (390)
- April 2020 (321)
- May 2020 (335)
- June 2020 (327)
- July 2020 (333)
- August 2020 (276)
- September 2020 (214)
- October 2020 (233)
- November 2020 (242)
- December 2020 (187)
- January 2019 (251)
- February 2019 (215)
- March 2019 (283)
- April 2019 (254)
- May 2019 (269)
- June 2019 (249)
- July 2019 (335)
- August 2019 (293)
- September 2019 (306)
- October 2019 (313)
- November 2019 (362)
- December 2019 (318)
- January 2018 (291)
- February 2018 (213)
- March 2018 (275)
- April 2018 (223)
- May 2018 (235)
- June 2018 (176)
- July 2018 (256)
- August 2018 (247)
- September 2018 (255)
- October 2018 (282)
- November 2018 (282)
- December 2018 (184)
- January 2017 (183)
- February 2017 (194)
- March 2017 (207)
- April 2017 (104)
- May 2017 (169)
- June 2017 (205)
- July 2017 (189)
- August 2017 (195)
- September 2017 (186)
- October 2017 (235)
- November 2017 (253)
- December 2017 (266)
- January 2016 (164)
- February 2016 (165)
- March 2016 (189)
- April 2016 (143)
- May 2016 (245)
- June 2016 (182)
- July 2016 (271)
- August 2016 (247)
- September 2016 (233)
- October 2016 (191)
- November 2016 (243)
- December 2016 (153)
- January 2015 (1)
- February 2015 (4)
- March 2015 (164)
- April 2015 (107)
- May 2015 (116)
- June 2015 (119)
- July 2015 (145)
- August 2015 (157)
- September 2015 (186)
- October 2015 (169)
- November 2015 (173)
- December 2015 (205)
- March 2014 (2)
- March 2013 (10)
- June 2013 (1)
- March 2012 (7)
- April 2012 (15)
- May 2012 (1)
- July 2012 (1)
- August 2012 (4)
- October 2012 (2)
- November 2012 (2)
- December 2012 (1)