Money market fund (MMF) is a robust investment vehicle that collects capital from various investors to reinvest in low-risk, short-term debt instruments, including Treasury bills and commercial paper.
MMFs are designed to offer high liquidity, allowing investors to access their capital with ease. As a result, they are often regarded as a prudent and stable choice for those looking to preserve and enhance their financial resources.
Different financial institutions offer different rates. Currently the average is about 13 percent p.a. Consider knowing if there are any deductions. If you are not sure now interest is calculated, ask financial institution to send you a working.
Security of your money
Though money market is reinvested in Treasury bills, it is still important to know where you are investing your money. It's not enough to consider the interest rate alone but also the financial institution you are entrusting your money with.
Purpose of your investment
The purpose of investment will determine the amount of your investment, deposits placed, duration among others. Keep in mind that while MMFs are low-risk, their interest rates tend to be less attractive. This means it's wise not to put all your money into a money market fund.
Discipline
Most MMFs have a quick withdrawal policy, which allows withdrawals between 1 and 4 days. This means you will need a lot of discipline so that you do not end up always withdrawing.
Without discipline, the MMF will not serve its purpose. It is important to set clear goals and plan on how you will achieve them.
Plan how much you will deposit and also after a specified period and implement and eventually you will see the goal actualised.
Joint Investment
Money markets allow people to invest collectively. Most people who prefer this type of investment are Couples, Friends, and Chamas (a small group or association, often used for informal investment and savings purposes).
There are specific rules for a joint money market fund and vary from one financial institution to another. Whenever you decide to put your money in any investment, ask questions. Let it make sense to you before you invest.
How do you join a money market fund?
This depends on the financial institution you have settled with. Most of them can be done from the comfort of your home with a few upload requirements like your national ID, Bank ATM photo/Bank statement, KRA PIN, your photo, email address, Next of kin details (Name, Date of Birth, Telephone number), Telephone number, Occupation.
Alternatively, the financial institution can ask you for the information and create an account for you. Ensure that you have a legit representative from the financial institution to avoid losing your money way before you even start investing it.
How much money is required to join a money market fund?
Depending on your choice, different financial institutions have a minimum requirement for what you need to have an MMF.
Withdrawal and Deposit
Most MMFs have applications that can be downloaded from the Google Play Store. This application has withdrawals and top-up options, making it easy to access and deposit funds.
Alternatively, they offer an M-Pesa paybill option, which is also swift. Withdrawal can be directed to the bank account or MPESA. This will also depend on the Financial institution one settles for. Withdrawal request can also be sent via email but use of the downloaded application is easier and faster.
Withdrawal period takes 1-4 working days, depending with also the financial institutions. Though most indicate 2-4 working days, sometimes it takes 1 working day for the money to be deposited either in your MPESA or bank account.
Other costs of MMF
Withdrawal charges vary from one financial institution to another. This should be asked before joining a money market fund.
Monthly fees are also deducted
Withholding Tax on interest of 15 percent is also deductible. 15 percent Withholding tax (15 percent of that interest earned in MMF is withheld as tax before the net amount is credited to your account and remitted to KRA), mostly deducted at source.
How do you track your investment?
A statement is sent to the email address shared at the end of each month. It indicates the deposits, withdrawals, interest earned, withholding tax, and available balance.
To access the statement, a request can be sent via email. Additionally, the balance can be accessed through the application downloaded from the Google Play Store.
In conclusion, a money market fund (MMF) is an excellent investment option that can effectively meet your financial needs. It's essential to ask the right questions and fully understand the fund before opening an account and determining your investment amount.
Clearly defining your goals is critical, as it drives your investment decisions and ensures they align with your financial objectives. By taking these steps, you can confidently choose the best investment channel for your future success.
The writer is an accountant specialising in investment advisory.
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