Brief Overview

What is a money market fund?

Money market funds are mutual funds that invest in short-term money market instruments.  These funds allow investors to participate in a more diverse and high-quality portfolio than if they were to invest individually. 

Like other mutual funds, each investor in a money market fund is considered a shareholder of the investment pool, or a part owner of the fund.  All investors in a money market fund have a claim on a pro-rata share of the fund's assets in line with the number of ‘shares' or ‘units' owned.

What is an IMMFA fund?

IMMFA funds are European money market funds which obtain a triple-A rating and abide by the IMMFA Code of Practice.  These funds are actively managed within rigid and transparent guidelines to offer safety of principal, liquidity and competitive sector-related returns.

Other types of money market funds exist in Europe, notably in France and Luxembourg.  These funds are managed with an objective of providing a constantly increasing net asset value, and may place a slightly higher emphasis on obtaining yield than IMMFA money market funds.

What is the difference between constant net asset value (CNAV) money market funds and variable net asset value (VNAV) money market funds?

Shares in CNAV funds are issued with an unchanging face value, such as £1 / €1 / $1 per share.  These funds tend to hold assets until maturity, and therefore use amortised cost accounting to value their assets.  All IMMFA money market funds are CNAV funds.

Shares in VNAV funds change daily based on the value of the underlying instruments.  These funds tend to sell assets before maturity to realise capital gains, and therefore often use mark-to-market accounting to value their assets. 

What is the difference between a distributing and accumulating money market fund?

Interest income for most money market funds is accrued on a daily basis.  In a distributing money market fund, this interest income is paid out to the investor, usually daily or monthly.  In an accumulating money market fund, this interest income is added to the value of the fund's shares / units.  IMMFA money market funds can be distributing or accumulating.

Are 'enhanced cash' funds the same as money market funds?

No. 'Enhanced cash', or ‘dynamic money market', funds typically seek higher yields than traditional money market funds.  This incremental yield is achieved through investment in longer-term and/or lower-quality instruments, which exposes the investor to additional risk as compared to a traditional money market fund.

What type of charges can be expected for money market funds and how are they levied?

Money market funds generally charge an annual management fee but not an entrance or a redemption fee.  As annual fees vary between providers, investors should contact their advisor and/or the fund's promoter to obtain further information on fees.

What are the tax implications of using a money market fund?

The tax implications of using a money market fund vary according to the investor's individual situation and may also depend on the domicile of the fund.  It is recommended that investors obtain expert tax advice before investing.