Money Market Funds in South Africa
The South African website IOL writes (on South African money market funds), "When should you use a money market fund?" It says, "Money market unit trust funds have become synonymous with safe, secure and reliable investments, but under what circumstances should you use them?" The piece quotes Bekithemba Mafulela, business development manager at Allan Gray, "Understanding how money market unit trusts work can help you to use them effectively in your portfolio.... They are an effective 'parking place' for your money. They allow you to store money that you will use in the near future, while getting some returns." The article explains, "In simple terms, the money market is where companies, governments and banks raise money by getting short-term loans from investors. In practical terms, all transactions are done electronically through a network of buyers and sellers, sometimes in auctions run by the banks, and there is no central or physical location where the money market exists. Money market unit trusts are a good tool to use for money in transition or for short-term savings.... [Mafulela] says a money market fund is similar to a fixed deposit account at a bank, with some advantages. First, you can cash out whenever you want. "With most fixed deposit accounts, you are locked in for a specified period where you may not withdraw your money without penalties," he says. "A money market unit trust is more liquid, which is something you should consider when comparing its returns to a fixed deposit from a bank." The article adds, "The downside of money market investments is inflation, Mafulela says. The returns of a money market unit trust often do not keep up with inflation over the long term.... At the end of March, money market unit trust funds were giving yields of 7.04% to 8.23%, depending on the fund. The lowest minimum investment in such a fund is a lump sum of R2 000 or R200 a month."
