Money Market Fund Q&A
What is a money market fund?
A money market fund (‘’MMF’’) is a type of mutual fund which is primarily invested in short term, good quality and liquid debt securities. Its primary objectives are to provide a positive return over the short term, while minimizing volatility and ensuring daily liquidity to investors. A money market fund is a remunerating alternative to cash at hand or idle cash.
How do money market funds work?
Money market funds pool money from investors and buy good quality, short term and liquid debt securities. They sell shares of the MMF to investors, depending on their investment amount and the MMF’s NAV (‘’Net Asset Value’’) on the day of the investment. The investors then receive an indirect exposure to all of the MMF’s holdings and they can potentially earn returns in the form of capital gains.
What kind of investors should consider a money market fund?
MMFs are suitable for retail and institutional investors who:
- - Prioritise capital preservation over maximizing returns;
- Have a low tolerance for volatility;
- Want to diversify their current investment portfolios with an exposure to short term, good quality and liquid fixed income securities;
- Are looking for short term investments while awaiting new investment opportunities over the longer term; and
- Are saving for emergencies and/or other project such as a downpayment for property acquisition.
What are the benefits of investing in a money market fund?
(a) Low Volatility:
Since the fund valuation is on an amortised cost basis, volatility is smoothed out over the holding period of the investments.
(b) Daily liquidity:
Investors can withdraw money easily with daily dealing and valuation. Unlike a fixed deposit, there are no exit fees if investors redeem their shares in the money market fund at an earlier date than unexpected.
(c) Diversification:
MMFs offer diversification benefits to investors since they typically hold debt securities of several issuers. If we consider fixed deposits and savings accounts, the entire exposure is to a single financial institution.
(d) Zero Fees
There are no entry and no exit fees.
What Money Market Funds do you offer?
Swan Capital Solutions currently offers two MMFs:
- - The MMF MUR:
The fund’s base currency is MUR and it primarily invests in short term Mauritian fixed income securities; and
- - The MMF USD:
The fund’s base currency is USD and it primarily invests in short term debt securities of developed countries.
What are the yields for money market investments?
The MMF USD and MMF MUR are currently offering a net yield of 5.08% and 3.72% respectively. Of note, the yields are subject to market conditions.
We will shortly launch a MMF EUR which will have an estimated net yield of 3%.
Are money market fund dividends taxable?
Our MMFs do not pay dividends – They provide capital protection and growth, subject to market conditions. However, if investors redeem their shares held in the MMF at a higher NAV (‘’Net Asset Value’’), there will be no taxes paid on the realised gains.
