Money market funds are short-term unlisted managed investment schemes structured as open-ended mutual funds. Its underlying assets are usually low to medium risk cash-based investments that offer higher interest rates, such as certificates of deposit (CDs) and other high-interest securities.

A money market fund is one of the prime choices for Australians who prefer cash-based investments since it retains liquidity and minimises risks to the principal investment. It also opens up the opportunity for individual investors to access assets that require a high initial capital.

Here’s a quick guide to money market funds before investing in one.

Money market: accounts versus funds

A typical money market account is accessible only to wholesale investors, such as big institutions and people with large capital. Since the minimum principal investment usually amounts to $500,000, investors with smaller capitals do not usually have enough to invest.

Fund managers have made such accounts more accessible to retail investors through money market funds because most try to maintain a consistent net asset value (NAV) at or close to $1.

Since money market funds are unlisted investments, they are cannot be traded on the Australian Securities Exchange (ASX). However, ASX developed the mFund—a separate platform for unlisted managed funds—where investors may find and enroll in money market funds.

Fund managers, brokers and some banks also offer money market accounts and funds.

Money market fund features

Money market funds have various features that make them attractive to investors, such as:

Accessibility
As mentioned earlier, money market fund assets are usually difficult to access for retail investors because of the high capital requirement. Since fund managers invest in a diverse pool of cash-based and short-term liquid assets, investors are able to diversify and acquire previously inaccessible securities at a more reasonable price.

Liquidity
Money market funds retain liquidity because of the fund’s nature as a short-term investment. Since most funds mature in less than one year, investors don’t have to wait years to receive their capital plus investment returns.

Its open-ended mutual fund structure also allows investors to redeem their investment anytime if they don’t want to wait until maturity.

Diversity
Money market funds are not limited to one type of investment. Managers may combine term deposits, treasury bonds, redeemable dividend-paying shares, callable corporate bonds, hybrids, or any high-interest securities to form the fund.

The only requirements are that the underlying assets must be short-term, pose lower risks, and have higher interest rates.

Risks

Money market funds almost resemble term deposits offered by financial institutions, but investors must understand a few key differences.

The fund is an unlisted managed fund. Money market funds usually provide higher returns even with minimal risks. However, despite active risk management, it can still decrease in value.

There’s no insurance. Unlike term deposits which are insured for up to $250,000, these investments hold no insurance.

This information has been sourced from ASX.

About the author

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

more on this topic

Stock market

Russell rebalance reshapes investment landscape amid SpaceX IPO buzz

As the world eagerly anticipates SpaceX's historic initial public offering today, a significant shift is quietly occurring in the financial markets, one that could have profound implications for both ...Read more

Stock market

Franklin Templeton expands active ETF suite with new global equity and income strategies

In a strategic move to broaden its investment offerings, Franklin Templeton has announced the launch of two new active exchange-traded funds (ETFs) on the Australian Securities Exchange (ASX)Read more

Stock market

ASX companies make strides amidst federal budget chatter

In a week dominated by discussions surrounding the recently released FY27 federal budget, the financial landscape witnessed significant activity, particularly among ASX-listed companiesRead more

Stock market

ASX small caps report mixed results amid market optimism

The latest flurry of quarterly activities reports from ASX-listed small cap companies has provided a snapshot of the diverse and dynamic landscape of Australia's financial market. As April came to a ...Read more

Stock market

Adisyn Limited and Brazilian Critical Minerals make significant strides in their respective sectors

In a landscape where Australia's Information Technology sector often plays second fiddle to global giants, Adisyn Limited (ASX: AI1) is making waves with its innovative advancements in graphene ...Read more

Stock market

Australia's ASX 200 Energy Index surges amid Iran conflict

Australia's ASX 200 Energy Index has surged nearly 20% since the onset of the Iran conflict, marking its highest level in three months. This development positions Australia as the only developed ...Read more

Stock market

Webull launches Webull Connect, revolutionising access for Australian financial advisers

In a significant move that marks its entry into the Australian wealth management sector, Webull Securities (Australia) Pty Ltd, a subsidiary of the Nasdaq-listed Webull Corporation, has unveiled its ...Read more

Stock market

Future Generation Global boosts dividends with special payout, marking significant yield increase

Future Generation Global (ASX: FGG) has announced a significant boost to its dividend offerings for the year 2025, delighting shareholders with an increased fully franked full-year dividend and an ...Read more