Benefits to Investors

For investors, money funds are as simple to use as bank deposits, whilst offering extra advantages.

Diversification of investments

If an investor places money in one bank deposit account, all of their risk is linked to a single bank. On the other hand, money market funds are required by law to invest in securities issued by several entities (e.g. banks, governments, companies), and many hold securities from dozens of issuers. As a result, an investor in a money market fund has limited exposure to any one issuer, frequently less than 2% of their total investment.

External credit analysts

Investment in a money market fund also provides access to a professional cash management team. The investment manager will employ dedicated portfolio managers and credit analysts who can extensively analyse potential investments. These benefits are provided for a fee which is small when compared with the likely cost of having such resources in-house.

Same-day liquidity with no redemption penalties

Typically money market funds offer daily liquidity, i.e. allow investors to purchase or redeem their shares / units on a daily basis.  This liquidity, combined with a conservative investment profile, enables money market funds to be used by institutional investors for daily cash management purposes.

Segregation of assets

Money market funds are required by law to have their assets held by a depositary. The fund's custodian will hold the fund's assets in a separate, ring-fenced account which is identified as belonging to the fund. This provides an additional level of security for investors.  Investors in a money market fund are considered shareholders of this investment account, or part owners of the fund. 

Competitive money market returns

Money market funds are designed to provide capital security and same-day liquidity with no penalty being applied.  Although providing yield is of a secondary concern, these funds can also provide a competitive yield as compared to bank deposits.

Treatment as cash equivalents

Investment in a money market fund may be treated as cash equivalent for accounting purposes, thereby assisting corporate investors in preparing financial statements.  Further details may be found here.  

Further benefits of IMMFA money market funds

IMMFA funds must comply with requirements imposed on all mutual funds (including the UCITS Directive), the constraints of the triple-A rating and the IMMFA Code of Practice.  The Code of Practice includes key risk-limiting provisions for institutional money market funds.  These guidelines were designed to limit the risk to which the fund is exposed, for the benefit of investors.

• To manage interest rate risk, funds must have a WAM on not more than 60 days. Individual securities must have a final maturity of 397 days (non-Governments) / 762 days (Governments).

• To manage credit risk, funds must have a WAFM of not more than 120 days and obey the triple-A rating credit criteria established by the credit rating agencies.

• To manage liquidity risk, funds must maintain a minimum of 5% in overnight securities and 20% in securities maturing within five business days. Funds must follow a Board-approved liquidity policy, and managers are required to manage shareholder concentration.

To provide investors with adequate information, funds must disclose their WAM, WAFM, liquidity ladder and performance data each month.

Please note that certain sections on this page originally appeared as part of an article in Government Business.