Money Market Funds (MMFs) are a reliable financial option for managing money, though typical Malaysian investors are not aware of these funds, and therefore prefer to keep their cash reserves in savings accounts and fixed deposits. Why are those products considered more important than money market funds? Simply put, banks really want to put your money in fixed deposits. With fixed deposits, it helps banks manage their capital better for lending purposes. Theoretically, if you have RM50,000 as a fixed deposit for 3 months, the bank can use any part of that RM50,000 as a loan for the next 3 months, but the bank can make more profit on those loans with interest. But, with a money market fund, the bank misses the opportunity to take full advantage of your deposit. Therefore, banks and fund managers do not promote money market funds because these firms make very little profit.
What is Money Market Funds?
Money market fund invests in highly liquid, short-term cash equivalent instruments, commonly known as “money market instruments.” Banks issue money market instruments, such as commercial papers, as a way of reinforcing short term cash to balance its daily deposit shortfall reserves. In other words, by buying the money market instruments, money market funds are effectively lending money to banks. These instruments are supported by banks and are considered a low risk due to their high liquidity and short term.
In addition to investing in money market instruments, the money market fund also holds fixed deposits from banks as another way to gain returns (refer below graph of our asset allocation for the month of March 2021). Not only do money market funds have a network of banks available to find the best rates, but these funds also have higher negotiating power than retail investors as they can place large amounts of money, often up to a few hundred million Ringgit, with the banks.
As money market funds handle large amounts of money and need to stay liquid, they regularly harvest mature fixed deposits and put new funds into new fixed deposits. By regularly redeeming mature fixed deposits, you can earn a similar rate fixed deposits through a money market fund without locking up your money.
This Is Why We At Versa Launched A Digital Cash Management Platform That Invest Into Money Market Funds.
As a money market fund, this is a very low risk investment that allows you to earn a comparable or potentially higher rate than a fixed deposit. You can use a money market fund to manage your cash flow in a convenient way without any hassle lock-in periods. We’ve designed our Mobile App to keep entry fees low and your options wide. With Versa, you can flexibly get an expected return of 2.46% on any amount of money for the duration that you like. There is no minimum or maximum deposit amount, so this is an option that gives you the flexibility to manage your emergency funds or cash that you intended to use in the short to medium term.