This archive report was first published on 17 August 2019.
Is Your Money Safe in a Money Market Fund? ¶
Money market funds have gained popularity in Kenya as a low-risk investment option. But is your money truly safe in a money market fund?
Published on August 17, 2019, a Tuko article explored the safety of money market funds in Kenya.
A money market fund is a type of collective investment scheme that pools funds from investors and invests in liquid, interest-earning instruments. These instruments typically include short-term government securities, commercial papers, and bank deposits.
One of the key factors that contribute to the safety of money market funds is the short maturity period of the underlying assets. This reduces their exposure to market fluctuations, making them relatively stable.
Additionally, money market funds are regulated by the Capital Markets Authority (CMA) and are required to comply with the Capital Markets Act Cap 485A and the Capital Markets (Collective Investment Schemes) Regulations 2001.
Furthermore, money market funds have a number of safeguards in place to protect investors' money. These include a CMA-approved fund manager, custodian, trustee, and auditor, each playing a separate role in safeguarding investors' funds.
The fund manager invests the pool of funds on behalf of the investors, while the custodian holds the assets under management and issues instructions to the fund manager. The trustee governs the fund and holds everyone accountable, and the auditor reviews the financial statements of the money market fund to ensure their accuracy.
Money market funds are also highly transparent, with rates published daily, allowing investors to track the performance of their invested money. Moreover, account deposits are available for immediate withdrawal, and most fund managers allow one free withdrawal every month.
Lastly, money market funds have a diversified portfolio, which minimizes the risk of loss by spreading it across a range of securities. This means that if one investment performs poorly, another may perform better, absorbing the loss.
Overall, while there are risks associated with investing in a money market fund, the various safeguards and regulatory compliance in place make it a relatively low-risk investment option.
