When selecting a money market fund (MMF) one needs to ask questions that address the following:
- The rate of interest
MMF earns interest daily and it is compounded and annualised. The rate of interest is known as daily yield and effective annual yield. The daily yield is the daily interest which is computed on the funds daily and credited to your account and the effective annual yield is the compounded rate for the period. The Yields fluctuate on day to day.
The computation on your funds takes into account the number of days in the month your principal was invested, any additional deposits and withdrawals. Withholding tax of 15% is also deducted on the interest earned.
Money Markets also charge a management fee that is deducted. Management fee is the amount that fund managers charge for doing all the heavy lifting which is looking for viable investments to invest your funds and earn the rates and it is also what they use to pay themselves. They are also in operations and need to keep the business running. The fee is not standard and differs from each institution. The fee is charged on an annual basis and is netted off your daily interest rate.
When checking the rate always remember to ask if it is net of fee because some funds report their rates gross of fee which might mislead you as the investor.
2. Minimum initial deposit and minimum top up
It is always important to find out the minimum deposit and top up. The minimum deposit is usually for activating and keeping your account active. This amount needs to be maintained at this level for it to keep earning the interest.
Some fund managers have a minimum top up amount which is the additional deposits you add to make your account grow.
3. Where is your money being invested
MMF’s are liquid and low-risk because of the instruments your cash is invested in. Ensure before you invest you ask your investor for a breakdown of the instruments they invest your money. You can ask how they allocate the funds to different assets and the percentages, the durations of the investments, profits and losses etc. This helps you to assess whether the fund is investing in illiquid assets.
4. Withdrawal charges
One of the key features that make MMF attractive is their liquidity which means you can exit when you need to since the minimum lock period is usually less than 30 days. Majority of the MMFs do not charge a withdrawal fee if you withdraw just once in a month but subsequent withdrawals in the same month might incur charges. It is something you need to find out before investing in the fund.
Interested in placing your cash in a money market fund below are some of the money markets that we consider as the best in the market:
- Zimele Money Market Fund known as the Zimele Savings Plan
It is a flexible convenient fund which has been in operation for more than 21 years. It is ideal because one has free access to online statements, no minimum balance is required and has a quick processing time for withdrawals.
You can join by filling in the membership or online through the link: https://zimele.co.ke/join/
- CIC Money Market Fund
CIC is the largest money market fund manager in Kenya with a market share of 41.4% in H1 2019 as reported by a report by Cytonn Investments https://www.cytonnreport.com/blogs/cic-money-market-fund-records-the-largest-market-share–while-cytonn-money-market-fund-records-fastest-growth-and-highest-returns
You can withdraw your funds on short notice with no penalty fees and there is the flexibility to switch or transfer funds to other products within the CIC Asset management
To join you require to fill in a membership form
- Nabo Money Market fund
The fund seeks to maximize on current income. The recommended minimum investment is a period of 3 months so as to see gains on your capital
- Sanlam Money Market Fund known as (Pesa+)
The fund is ideal to use as an emergency fund and cautions clients against market volatility. It offers quick access to the funds and a cash withdrawal facility.
- Cytonn Money Market Fund
Cytonn Money Market Fund (CMMF) offers competitive rates. The fund is innovative and has a wallet that you can use to pay your bills and do top ups at any time.
You can join by dialling *809≠ on your mobile phone or you can fill in the investment form
Below is a summary of the key Features:
|Jan 2020 Annual Average Yield (p.a.)||9.91%||9.72%||11.03%||9.85%||9.81%|
|Annual Mgt Fee (p.a.)||2%||2%||2%||1.50%-2.25% depending on unit class||1.2%|
|Min. initial investment||Kshs. 100||Kshs. 500||Kshs. 100||Kshs. 1,000,000||Kshs. 2,500|
Remember, before selecting which fund to invest in ask all the questions you can think of because all questions are valid questions and there is no stupid question when it comes to your hard earned money so ask away. This is why Vasili Africa exists to answer them and help you start your journey.
Learn more about Money Market Funds investments by reading Understanding Money Market Investments in 5 steps.
This article was written by Caroline Musau, Chief Operating Officer at Vasili Africa. Get in touch with Caroline for free investment advice via firstname.lastname@example.org