What To Look For When Choosing a Money Market Fund Manager

By Cytonn Investments

Money Market Funds continue to gain popularity among individuals, given the attractive rate of returns offered by the Money Market Funds and the investors’ preference for capital preservation in times of market volatility.

As such, it comes as no surprise when nowadays someone posts, on the various social media platforms, a question, “which is the best money market fund in the market?”

Recent data from the Capital Markets Authority indicated that their Market share increased to 88.2% in Q1’2020 from the 87.0% recorded in FY’2019.

During the period under review, the total Money Market Funds Assets Under Management (AUM) accounted for Ksh67.4 bn in the first quarter of 2020 of the total Ksh76.3 bn AUM, an indication of the Money Market Funds popularity in Kenyan capital markets.

In Kenya, there are 25 licensed Fund Managers by the Capital Markets Authority (CMA) and at least 18 approved Money Market Funds.

With such a large pool of fund managers to choose from, a potential investor needs prudent metrics by which to determine the best fund manager to achieve their investments objectives.

Before delving into the factors to consider when choosing a Fund Manager for your investments, it is important to understand who is a fund manager and what defines a Money Market Fund.  

To start with, a fund manager is a market professional who manages and administers a portfolio of securities for and on behalf of investors.

The fund manager achieves this through extensive research and the understanding of the capital markets. On the other hand, a Money Market Fund (MMF) is a collective investment Scheme (CIS) that invests in fixed income short term debt securities such as bank deposits, bills and bonds.

These securities are mainly suited for low risk investors who are looking to grow their wealth.

MMF investors also enjoy capital preservation on their investments in addition to the competitive returns offered and ample liquidity.

Before investing in a Money Market Fund, it is important to have a comparison matrix by which you judge the best fund manager that will best suit your investments needs.

The investment decision making process, for most investors, when evaluating fund managers usually centers on historical performance, recommendations by friends and brand awareness. However, there are other factors which an investor should consider for a favorable investment experience as discussed below;

1. Regulatory and Trustee oversight – The Capital Markets Authority is the regulator of Collective Investments Schemes. Before investing in a Money Market Fund, it is important to ensure that the CIS is licensed by the CMA. The role of the authority is to oversee all operations of the fund and ensure that the scheme funds are invested in accordance with the stipulated regulations and guidelines. Other than CMA regulation, a good fund manager also has the oversight of a trustee and a custodian bank. A trustee is a financial institution approved by CMA so as to act as the overseer for the unit holders and ensures that the investors’ interest are protected at all times. A custodian bank on the other hand, ensures the safe custody of the title documents and cash amounts of the fund as well as settling any trade instructions by the fund manager. This oversight enhances the security of investor funds.

• Disclosure and transparency – During the investment period, the fund manager should keep the investor informed by having periodic communications including; market performance reports, fund performance report through the regular fact sheets – which outlines the fund performance over a given period of time as well as disclosing where the investor funds are invested, and at least a monthly client statement which preferably should automatically be sent to the investor’s contact address on a monthly basis. With advancements in technology, your preferred fund manager should have a self-service online platform. Lastly, the manager must publish the fund’s rate of returns in the daily newspapers for the view of the general public.

• Provision of an efficient investment process – With the evolution of technology more so in the financial services, there has been a rise in investors desire for contactless investments solutions. For starters, the investor on boarding process should be seamless, easy and accessible. A fund manager has to leverage on the emerging trends in client onboarding such as USSD codes, mobile and web portal applications, etc., to enhance investor experience. At the point where the investor wishes to exit the fund, the fund manager should also ensure there is an efficient withdrawal process in place. Withdrawals should be made seamless and effortless given the liquidity aspect of the fund. When looking for a good fund manager for your investments, it is important to look out for one that provides an all-inclusive financial eco-system for you.

• Prudent risk – return balance – Money market funds have been able to offer attractive returns to investors owing to the diversified asset allocation that maximizes returns on a risk adjusted basis. A good fund manager provides diversification of the fund across various asset classes, which is guided by the investment policy statement, thereby minimizing the risks associated with the fund.

In conclusion, given the large pool of fund managers to choose from, investors should ensure they have their own yardsticks that ensures that they invest with a fund manager who aligns to their investment objectives.

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