Money Market Funds(MMF) are mutual funds which invest primarily in short term government securities (min 70%) and rest of the money in bank accounts of good quality banks (AA rated and better). When you need your money back the mutual fund manager returns it in one to three days alongwith whatever the profit is accrued.
The benefits of a money market funds compared to bank saving accounts are given below:
- MMF currently give a return of around 11% p.a. compared to average deposit rates of 5 - 8% p.a.
- The return on saving bank deposit is taxed 10% for individuals and 35% for corporates while MMF if held for atleast one year will be taxed at a very low rate
- In terms of security of capital MMF is safer as it invests only in government securities and high quality bank deposits
- Some MMF return money through same day redemptions i.e. if you file a request in the morning your account is credited the same day
The key to start investing in MMF is to first identify a sound fund manager who has the following minimum credentials.
- Strong institutional backing
- At least five year track record of fund management
- Availability of online access to your account
- High quality of customer services
The above factors are not too difficult to judge even for a person who is not well-versed with financial management.A good source to look for fund managers is www.mufap.com.pk
Start now and believe me you will be addicted to optimize returns on your savings through money market funds.
Happy investing!
Mir
