Financial Times

Money market funds - stash your cash
Money Market Funds are Unit Trusts or Mutual Funds created to provide alternate saving schemes for the public both corporate and individuals. These funds invest in short term government securities such as treasury bills and treasury bonds having less than one-year maturity (usually from the secondary market) and high quality short term papers having less than one year to mature.

These funds attempt to maintain its initial offer value of Rs 10 per unit and referred as Net Asset Value (NAV), so their risk exposure is non existent when compared to income and equity funds. Money Market funds are regulated by the Securities and Exchange Commission in terms of the quality, maturity and diversity of debt instruments they may invest in. Normally investors do not lose money on a Money Market Fund. Investors can withdraw their investments as and when they need money and the proceeds are usually paid by cheque or directed to the credit of the investors bank account.

While nothing is risk-free the Money Market Fund has a better track record in developed market. The primary investing goal is to protect the funds at the Rs 10 level per unit. In pursuit of this goal, Fund Managers rely on the expertise of the investment team and take advantage of their strong commitment to research. The investment process is driven by the desire to deliver superior return for the investors.

The Money Market Funds pays dividends on a regular basis to provide the return from the Money Market net of its expenses. The dividends can be provided on a monthly or quarterly basis. The dividends can be paid to by cheque or directed to the credit of the investor's bank account.

The Money Market Fund which is similar to other Unit Trust or Mutual Fund products provides with an offer document giving details of the scheme and the tax structure so that investors can clarify their needs with that of the benefits of the fund. Some Fund Management companies permit their investors to re-invest the dividends in other schemes they manage. However, usually investors can reinvest the dividends in the same fund, if they do not require regular cash from the Money Market Fund investments.

In Sri Lanka there are no Money Market Funds operating so far. Hence, launching a Money Market Fund would open a new opportunity to all classes of investors to park their short-term cash to enhance yields on their savings. It offers an opportunity to intermediaries such as stockbrokers to park their clients' funds when they are out of the stock market. For corporates and institutional investors the Money Market Fund gives a new avenue to manage their treasury and to plan their after tax returns. Soon the Money Market Fund will be a reality in Sri Lanka. (Courtesy - NAMAL)

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