The pitch has always been, “If you want to invest and have a good night's sleep, invest in the Money Markets and not the Stock Markets”. As the world continues to endure the effects of the Covid-19 economic downturn, which in my view is a normal phase of any healthy economy, ebbing and flowing through epochs of expansion followed by periods of contraction, Money Market Funds have been proven as a safe refuge for investors and have become the greatest beneficiaries of the massive flow of assets from the Stock Markets as investors dump risky assets in panic sell-offs in search for liquidity and stability.
In Kenya, according to the Cytonn Monthly Report, the Nairobi All Share Index (NASI) and NSE 20 lost 20.7% and 23.9% respectively, wiping out Kshs. 11.2 billion worth of investor wealth at the bourse between January and March. These funds can be traced to precious metal purchases such as Gold and Money Market investments. In China, Chinese investors have stashed more cash in Money Market Funds during the Covid-19 pandemic period. According to the Wall Street Journal, a total of $ 141 billion so far has been flocked into their domestic Money Market Funds in the first quarter of 2020. This has totaled Assets Under Management to $1.16 trillion by the end of March 2020.
Unlike banks, instruments in Money Market Funds in virtually all jurisdictions are not generally covered under the Deposit Insurance Act. Instead, these funds operate under vigilant regulatory scrutiny through pieces of legislation and regulation that aim to mitigate any potential risk that might affect their stability. In Kenya, Money Market Funds are regulated by the Capital Markets Authority through the Capital Markets Act Cap. 485 A. 2001. This piece of regulation classifies Money Market Funds as Collective Investment Schemes and in particular, they are categorized under Unit Trusts funds alongside Balanced and Equity Funds.
These funds continue gaining popularity in Kenya. According to a report by Cytonn Asset Managers on the performance of Money Market Funds in H1’2019, the total Assets Under Management held by Money Market Fund Managers grew at an annualized rate of 23.2% to Kshs. 56.5 billion in H1’2019 from Kshs. 50.6 billion in FY’2018. Capital is raised from both retail and institutional investors through issuing units and invest this capital in short-term and transferable high-quality debt instruments such as government securities, certificates of deposits, and carefully selected commercial papers. In so doing, Money Market Funds remain low-risk, short-term, and open-ended investment vehicles and continue to play a major role in the financial intermediation between lenders and borrowers world over. An important source of short-term funding, store of monetary value, and utility payment. Investors in Money Market Funds have an option of transferring, purchasing, or redeeming their units daily. Local Money Market Funds such as the Cytonn Money Market Funds have become fully automated, making it easy for investors to invest and redeem funds instantly. Adoption of automation in Money Market Funds is inevitable especially for retail subscriptions, considering that Kenya has more than 95% smart-phone penetration. This is an opportunity.
The writer is a Senior Investment Consultant at Cytonn Investments. Email: firstname.lastname@example.org
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