Are you familiar with money market funds (MMFs)? FYI, money market funds (MMF) are a great way to invest your money and earn returns. MMF mutual funds are a form of cash that is equivalent to cash. They are low-risk, highly liquid, and can be used for short-term investments.
The Edge Markets reports that 95 MMF were in the market at 30 October 2020. These MMF include 45 Islamic and 50 non-Islamic MMF. They are earning an average annual return of 2.3% and 2.35%, respectively. This is a very good return.
Are you thinking of getting into MMF? These are some of the things we learned about this type investment during our conversation with Teoh WeiXiang, Versa ‘s CEO and Richmond Yau, ‘s COO.
Note: Versa is a digital cash management platform which helps Malaysians make the most of their savings.
1. Different types of investments are covered by money market funds
MMF includes various money market instruments, such as cash, government securities, and unit trusts. MMF doesn’t always deal with just one type of investment.
The product determines which type of investment is used. This makes it easier to understand. The fund manager will then invest in different types of investments in your portfolio to give you the highest return. This will depend on which product you select.
It is different to invest in an MMF with 70% fixed deposits and 30% unittrust than one type of investment. Both the risks and potential returns will be different. It doesn’t matter if the trust is 100% unit trust. It would automatically diversify your risk and potential returns.
You might have invested in MMFs that deal 100% with fixed deposits. The projected returns are between 2.0% to 2.1%. However, your projected returns may be higher if you choose to invest in MMFs that offer other investment types, such as stocks or unit trusts.
It’s logical, lah kan, that you are investing in MMF. It’s crucial to ensure that you do your research before investing in MMF.
2. The Malaysia Deposit Insurance Corporation (PIDM) doesn’t protect money market funds.
MMF is not protected if you decide to invest in it. According to The Edge Market, Marshall Wong, FA Advisory Sdn Bhd, a licensed financial planner, said that PIDM protects up RM250,000 per bank depositor, but does not include MMF.
Always verify that MMF providers are regulated and safe. Versa is currently registered with the Securities Commission Malaysia, so it’s safe to make investments with them. You have layers of protection that will protect you from total loss. It’s also a low-risk, small investment.
Despite not being covered under PIDM it can still be invested in. It is important to understand the risks and potential consequences before you proceed. Unit trusts, for example, are not as protected but many investors still purchase them.
If you are interested, but remain cautious, you might start small and invest in MMFs that deal with fixed deposits 100%. You can then learn, and eventually you will be able to invest in MMFs that offer other investment options.
3. Money market funds don’t just exist for corporate institutions and T20.
Teoh stated that agents selling new MMF products don’t receive an upfront commission. Only a small portion of the annual management fee was earned by banks. MMF was once a ‘atas’ option because it required large deposits payments.
He explained that they need a large deposit from high-level corporate institutions and individuals with high net worth to offset their time holding sales.
The minimum initial investment for most MMFs is RM1,000. While it may seem affordable for “atas” people, it might not be for “bawah” people.
Today, you have many options for affordable and accessible MMF platforms, such as Versa, StashAway Simple, and Touch ‘n Go eWallet GO+. These platforms require a minimum investment of RM1 and RM10, respectively.
4. The bank also offers money market funds products that you can invest in.
This is something you may not be aware of if you are new to investing. Unfortunately, banks are not promoting MMF products to the masses. Do you see any MMF products on any of the bank promotion pages? However, there will be one for fixed deposit.
StashAway says this is because banks want you to place money in fixed deposit accounts. MMF investments are not as leveraged as fixed deposits. Management fees will be charged by the banks at 0.25% to 0.335% per year. This is a significant reduction in fees compared to fixed deposits, which can cost anywhere from 1% to 2 percent per annum.
It is likely that you are wondering which platform is best to purchase MMF products. Which is better, the banks or digital cash management platform? It all depends on what your investment profile is. Digital cash management platforms are a better option if you are looking for low-risk investments. The bank might be the right choice if you are looking for higher returns.
5. For goal-oriented investments, money market funds are a good choice
MMF is known for its no-lock-in policy. This means you can withdraw your money anytime during the investment period, without losing interest. It’s simple to access liquidity. Isn’t that amazing?
If you are a goal-oriented investor looking for something to put your money in, MMF is the right choice. MMF is the right choice for you. You might invest to build up your emergency savings. You planned to withdraw your money within two years after you have reached your goal.
This is not possible with all investment types, especially those that have a lock-in period and investment tenure. If you have fixed deposits with a lock-in period for 2 years, you will lose some of your accrued interest.
This was the case with Teoh. His puppy needed emergency ligament surgery because of a twisted leg. This happened three years ago. He drained his emergency savings from his fixed-deposit account, which was 3 days away from maturing, to pay for the procedure. He lost about RM1,000.
MMF investments won’t result in any loss of accrued interest. It’s an excellent investment tool that you should try. Do you want to save money for an emergency? It’s possible. Are you saving up for your wedding? Richmond says it’s not a big deal.
So when you plan your wedding, no expenses will be incurred. They have transferred all the wedding expenses into Versa. He explained that while they wait to get married, MMF is helping them to make a profit. They can pay their wedding planner and video shoot costs, as well as other expenses.
Richmond mentioned that MMF is also suitable for retirees. They can also invest their money in MMF and receive a good return. They can take their grandchildren on a vacation or spoil them with the money. Amazing grandparents!