A money market fund is a conservative investment vehicle that seeks to preserve capital and deliver yields in excess of bank deposits. Unlike bank deposits, money market funds spread your capital across a variety of institutions, thus significantly limiting risk to any one financial institution. Secondly, your capital is available within 24 hours at a higher yield than what you would normally receive on a bank deposit, thereby combining both liquidity and yield, a massive advantage for investors.

In South Africa neither bank deposits nor investments in money market unit trusts by individuals are guaranteed. So how can investors be sure that they have chosen a fund that will deliver on its mandate?

Before investing you should consider the following:

• Reputable and experienced cash manager: Check the reputation and experience of the asset manager. Has the firm developed a successful track record over the long term, delivering performance through all market cycles?
• Is it really a money market fund? Check whether the fund is a true money market fund. It should be a registered unit trust classified in the domestic money market category. There are far stricter monitoring criteria for funds that fall within this category.
• Fund rating: Does the fund have a AAA credit rating? The higher the rating of the fund, the more conservative the management of the fund and the greater the ability of the fund to maintain its value.
• Rating agency: Is the rating agency a reputable one with an established expertise of rating investment funds globally? The rating is an independent third party endorsement which assesses not only the assets in the fund, but the asset manager too. Ongoing monitoring takes place with a regular review of the depth of the investment team, fund liquidity and risk management.
• What if a fund is not rated? Check the underlying exposures of the fund. Is the fund well diversified across a number of institutions? Are the bulk of these institutions names with which you are comfortable?
• Stable return and yield: A money market fund is a conservative investment that delivers low volatility returns. Check the historical performance data to ensure that the yield and performance of the fund has been stable over time.

In summary, a conservative, well-managed, AAA rated money market fund is a very low risk investment, with the added benefits of diversification, daily liquidity and a yield pick-up.