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6 Things About Money Market Funds You Might Not Know

Updated 07 May 2021 – By Faiz Rahim


Have you ever heard of money market funds (MMF)? FYI, it’s one of the great investment options for you to park your money and get your returns. MMF is a type of mutual funds that are equivalent to cash - low-risk, highly liquid and suitable for short-term investment periods. 

According to The Edge Markets, there are 95 MMF in the market as of 30 Oct 2020. This number consists of 45 non-Islamic and 50 Islamic MMF, which are earning the average annual return of 2.35% and 2.3% respectively. Isn’t that a pretty good return?

So, are you planning to dip your toes into the world of MMF? Here are some things we’ve gathered on this type of investment from our chat with Versa’s CEO, Teoh Wei-Xiang and COO, Richmond Yau that you might not know.

Note: Versa is a digital cash management platform that helps Malaysians get the best out of their idle savings.



 

1. Money market funds deal with different types of investment

In case you don’t know, MMF comprises various money market instruments such as cash, commercial papers, government securities and unit trusts. It usually doesn’t just deal completely with one type of investment. 

To make it easier to understand, the various types of investment are depending on the product. Then, the fund manager will invest in different investment types in the portfolio that can give you the best return. Do note that this depends on the product that you choose. 

It’s different if you’re investing in an MMF that consists of 70% fixed deposits and 30% unit trust than to one type of investment. The risks and their potential returns would be different as well. The same goes if it’s 100% unit trust. Automatically, it would diversify your risk for potential returns.

For example, you’ve invested in MMF that deals 100% with fixed deposits and has projected returns between 2.0% and 2.1%. But, if you chose to invest in MMF that has other investment types such as unit trusts or stocks, the projected returns could be higher.

Make sense lah kan since you’re investing in a different investment type through MMF. That’s why it’s important to do your due diligence before investing in MMF so that the product you chose is meeting your financial objectives.



 

2. Money market funds aren’t protected by the Malaysia Deposit Insurance Corporation (PIDM).

Should you invest in MMF, bear in mind that it’s not protected. As reported by The Edge Market, FA Advisory Sdn Bhd’s licensed financial planner Marshall Wong said PIDM protects up to RM250,000 per depositor per member bank but it doesn’t include MMF. However, you don’t need to worry.

When in doubt, always check whether the MMF providers are safe and regulated or not. In this case, Versa is registered under the Securities Commission Malaysia - it’s still safe to invest with them. This means that there are layers of protection to guard you against total loss. Not to mention, it’s a relatively small and low-risk investment.

Therefore, although it’s not considered safe due to not being protected under PIDM, you can still invest in it. You just have to be aware of the risks and consequences before proceeding. For example, unit trusts are also not protected as well but many investors still buy them.  

Perhaps, if you’re interested but still feeling cautious, you can start small by investing in MMF that deals with fixed deposits completely 100%. From there, you can learn and one day, you’ll invest in MMF that deals with other investment options. 

You may take a look at PIDM’s frequently asked questions to see what kind of products aren’t protected as well:



 

3. Money market funds aren’t only for T20 and corporate institutions



Teoh commented that there's no upfront sales commission to agents who sell new MMF products. The banks only earned a very small percentage from the yearly management fee. This explains why MMF is used to be for ‘atas’ people as it would involve a large deposits payment.
 

"So that means they require a large deposit from all these high-level net worth individuals and corporate institutions to compensate their time to be worth holding a sale," he said.

If you look at most of the MMF out there, you’ll see that the minimum initial investment is RM1,000. It might be quite cheap for ‘atas’ people but it might not be the case for ‘bawah’ people. 

Fortunately today, there are many affordable and accessible MMF platforms that you can choose from like Versa, StashAway Simple and Touch 'n Go eWallet GO+. The minimum initial investment for these platforms is RM1, zero and RM10 respectively.

 

4. You can also invest in money market funds products offered by the bank



If you’re new in investment, you might not know this. Unfortunately, the banks aren’t promoting their MMF products to the masses. Just take a look at any bank websites’ promotion page, do you see any for MMF? But, you’ll see one for fixed deposits.  


According to StashAway, this is because the banks want you to put money in fixed deposits. Compared to fixed deposits, the banks don’t have the opportunity to fully leverage your deposits when you invest in MMF. The banks will only charge management fees as low as 0.25% to 0.35% per annum. This is low compared to other investment products like fixed deposits - 1% to 2% per annum.

You must be wondering which one is better to buy MMF products, right? Is it the banks or digital cash management platforms? Well, it depends on your investment profile. If you’re looking for something low-risk, digital cash management platforms would be a better choice. If you’re looking for much higher returns, perhaps the bank is your answer.

 

5. Money market funds are suitable for goal-oriented investment

Here’s the buzzword about MMF - there’s no lock-in period. This means that you can withdraw your money at any time during the investment period without losing any interest. Simply put, it’s easy to liquidity. Isn’t that great?



So, if you’re the type of goal-oriented investor that’s looking for something to invest in? That’s MMF for you. For example, you’re investing to save up for your emergency savings. Once you’ve achieved your goal, you planned to withdraw it within 2 years.

Unfortunately, not all types of investment would allow that easily - especially those with investment tenure and lock-in period. Let’s say you invest in fixed deposits that have a lock-in period of 2 years, you’ll lose some accrued interest. 

This happened in the case of Teoh. 3 years ago, his puppy had to undergo an emergency ligament correction surgery due to a twisted leg. To pay for the surgery, he withdraws his emergency savings from his fixed deposit account which were 3 days away from maturing. He ended up losing about RM1,000.

BUT, you won’t lose any accrued interest if you’re investing in MMF. This means it’s a perfect investment tool for you to try. Want to save for emergencies? No problem. Saving up to get married? No big deal, according to Richmond.

“So when you plan your wedding, all the expenses are not incurred. So, what they’ve done is transfer the whole wedding costs into Versa. This means while waiting to get married, they’re also earning well with MMF - being able to pay off their wedding planner, the video shoot, and all that,” he said.

Richmond also mentioned that MMF is suitable for retirees as well. They can also park their money and get a good return on their investment. With the money, they can enjoy a nice vacation and spoil their grandchildren rotten. Talk about amazing grandparents!

 

6. Money market funds are first-time-investors-friendly.

Teoh believes that MMF is the perfect choice for first-time investors. He said that it’s because MMF is a low-risk investment that first-time investors can dip their feet into. It could be a learning experience and gives you market exposure before you move on to other investment tools.

“While learning about other investments, they can park their money in MMF and still earn while waiting for the right time to invest in the stock property or crypto market,” he added.

Think about it - you want to invest in property but don’t have sufficient funds to do so. That’s why you park your money in MMF. Once you’ve received your desired returns, you can start buying and flipping property. At least, should anything bad happen, you won’t lose much - only the ones you’ve put into it.



As first-time investors, here’s what Teoh wants you to know. You need to look at your wealth brackets and see what are your capabilities as a first-time investors. To be safe, you usually need something low-risk and flexible. You don’t want to invest in MMF that has high volatility as a first-time investor, right?

“For MMF, you just put all your money in and then you let the fund manager, in this case, Versa do that decision for you and you’ll get the same returns as a fixed deposit, you don't have any lock-ins whatsoever,” he added.

 

If you’re interested in MMF, these are some things you should consider first...

  • What are your goals for investing in MMF?
  • What type of MMF you’re interested in? Have you weighed all options?
  • How was its past performance for the past 5 years?
  • What is the risk attitude of the MMF? Is it within your risk tolerance?
  • Are you investing for short-term or long-term return?
  • How much is the annual return for the MMF?
  • How is it going to be in the upcoming months and years?
  • If you’re a first-time investor, should you invest in MMF?

Once you’ve considered all of these, then, you can make a sound investment decision. This just shows how important it is to do your research and due diligence before investing. This way, you’ll understand and find ways to utilise MMF to the best of your capabilities.

Remember, there’s a reason behind your investment. It could be you’re getting married or just preparing your emergency fund, but, that’s the reason why you’ve started to do so. The bottom line is don’t you want to see it to fruition? 



Anyway, if you’re looking to invest in fixed deposits, just go to our article here: Here are the Best Fixed Deposit Promos in Malaysia 2021. Happy investing!
 

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*The above article is intended for informational purposes only. Loanstreet accepts no responsibility for loss that may arise from reliance on information contained in the articles.

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