Invest
What is a money market fund?
Learn what money market funds are and why they are a popular option for investors who prefer cash-based investments.
What is a money market fund?
Learn what money market funds are and why they are a popular option for investors who prefer cash-based investments.
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.
RELATED ARTICLES
About the author
About the author
Stock market
Portfolio reviews as an operating discipline: turning volatility into a competitive edge
In a higher-rate, higher-volatility world, portfolio reviews are no longer an annual hygiene task; they’re a core operating rhythm that protects cash flow, unlocks tax alpha, and sharpens risk ...Read more
Stock market
Fee war on the ASX: Global X’s A300 turns up the heat on core Aussie equity ETFs
Global X has lobbed a 0.04% management fee into Australia’s core equity sandbox, launching the Australia 300 ETF (A300) to take on entrenched giants. Read more
Stock market
Challenger IM shakes up the ASX with private credit note and a side of risk
Challenger Investment Management has taken private credit mainstream with an ASX-listed note structure—LiFTs—that secured roughly $100 million in cornerstone commitments within a day of launch. Read more
Stock market
International stocks: Diversifying your portfolio beyond Australia
In an increasingly globalized market, Australian investors have the opportunity to enhance their investment portfolio by incorporating international stocks. Diversifying your investments globally can ...Read more
Stock market
Stock market rally likely to continue regardless of Fed minutes tone, says deVere CEO
The bull run that has propelled Wall Street's major indexes to record highs this month is expected to continue regardless of the tone of the upcoming Federal Reserve minutes, according to Nigel Green, ...Read more
Stock market
US stock rally driven more by valuation growth than earnings, leaving tech names vulnerable: Innova
The strong gains in US stocks over the past year, particularly in the technology sector, have been driven more by expanding valuations than underlying earnings growth, leaving them exposed to a ...Read more
Stock market
Sun Silver to make its ASX debut with a $13 million IPO
Sun Silver Limited (proposed ASX Code: "SS1") has announced the opening of its Initial Public Offering (IPO) today, aiming to raise a minimum of $10 million and a maximum of $13 million (before costs)Read more
Stock market
Nasdaq hits record high, underscores the value of tech in investment portfolios
The Nasdaq Composite's surge to an all-time high last Friday highlights the importance of incorporating technology into investment strategies. Read more
Stock market
Portfolio reviews as an operating discipline: turning volatility into a competitive edge
In a higher-rate, higher-volatility world, portfolio reviews are no longer an annual hygiene task; they’re a core operating rhythm that protects cash flow, unlocks tax alpha, and sharpens risk ...Read more
Stock market
Fee war on the ASX: Global X’s A300 turns up the heat on core Aussie equity ETFs
Global X has lobbed a 0.04% management fee into Australia’s core equity sandbox, launching the Australia 300 ETF (A300) to take on entrenched giants. Read more
Stock market
Challenger IM shakes up the ASX with private credit note and a side of risk
Challenger Investment Management has taken private credit mainstream with an ASX-listed note structure—LiFTs—that secured roughly $100 million in cornerstone commitments within a day of launch. Read more
Stock market
International stocks: Diversifying your portfolio beyond Australia
In an increasingly globalized market, Australian investors have the opportunity to enhance their investment portfolio by incorporating international stocks. Diversifying your investments globally can ...Read more
Stock market
Stock market rally likely to continue regardless of Fed minutes tone, says deVere CEO
The bull run that has propelled Wall Street's major indexes to record highs this month is expected to continue regardless of the tone of the upcoming Federal Reserve minutes, according to Nigel Green, ...Read more
Stock market
US stock rally driven more by valuation growth than earnings, leaving tech names vulnerable: Innova
The strong gains in US stocks over the past year, particularly in the technology sector, have been driven more by expanding valuations than underlying earnings growth, leaving them exposed to a ...Read more
Stock market
Sun Silver to make its ASX debut with a $13 million IPO
Sun Silver Limited (proposed ASX Code: "SS1") has announced the opening of its Initial Public Offering (IPO) today, aiming to raise a minimum of $10 million and a maximum of $13 million (before costs)Read more
Stock market
Nasdaq hits record high, underscores the value of tech in investment portfolios
The Nasdaq Composite's surge to an all-time high last Friday highlights the importance of incorporating technology into investment strategies. Read more
