Beginner's Guide: How to Invest in Moneny Market Fund in Singapore
Based on a study by Moomoo SG, Singapore investors allocate an average of 70% of their fund portfolios to money market funds, which was selected by Singaporeans as the top investment tool to hedge inflation.
As inflation keeps going and the employment market remains sluggish, you may seek to park your cash in a safe and efficient way. Based on a study by Moomoo SG, Singapore investors allocate an average of 70% of their fund portfolios to money market funds, which was selected by Singaporeans as the top investment tool to hedge inflation. In this article, we will discuss the following questions, offering you a clearer view of money market funds in Singapore:
What are money market funds?
Why can you consider money market funds in Singapore?
How can you trade money market funds in the Singapore market?
What are money market funds?
A money market fund is a kind of mutual fund that invests in highly liquid, near-term instruments, such as cash, cash equivalent securities, high-credit-rating, and debt-based securities with a short-term maturity (such as Singapore government T-bills). It is also known as a parking fund, as many investors use money market funds as a place to park their cash until they decide on other investments, or for funding needs that may arise in the short-term. For example, if you are saving up for a down payment for properties or cars, you may invest money in a money market fund.
In Singapore, a money market fund usually invests in highly liquid, short-term, low-risk investments, such as fixed deposits, MAS bills, and Singapore government T-bills. Investing in lower-risk assets, however, money market funds should not be taken as risk-free. It's uncommon for money market funds to lose value, while the depreciation of the Reserve Primary Fund's net asset value from $1 to $0.97 in 2008 proves the possibility.
Here are some pros and cons of money market funds:
Pros
Lower risk and short-duration
Compared to stocks and bonds, money market funds are always regarded to have less risk, as the former tracks highly volatile assets, while the latter basically invests in low-risk vehicles such as Singapore government T-bills.
In addition, it may be an ideal option for a short duration. Investors who seek long-term horizons may consider parking their money in money market funds before they figure out the long-term funds to invest.
High liquidity
High liquidity can be another attraction of money market funds. With a focus on entities and/or securities that are in fairly high demand, money market funds tend to be very liquid, endowing investors with high financial flexibility.
Diversified portfolio
With a diversified portfolio of government, corporate, and tax-free debt securities, money market funds allow investors to diversify their investments in one action. Investors don't have to select and invest in various money market securities individually.
Cons
Lower returns compared with stocks and bonds
Money market funds have lower returns compared with stocks and bonds. Berkshire Hathaway tracked S&P 500 data back to 1965, presenting a 9.9% compounded annual gain in the S&P 500 between 1965 and 2022.
May fail to catch up with inflation
As discussed above, the average return rate of money market funds may be around 2% to 3%, while in some high-inflation days, income generated by money market funds may fail to catch up with inflation.
Reasons for you to consider money market funds in Singapore
No investment product is a one-fit-all panacea, and not everyone will take money market funds as an optimal choice. There are many reasons to invest in money market funds, and diving deep into those factors may help you better decide your investment.
Short-term Investment Goals
Money market funds are a smart choice for short-term investment goals. Their investments typically mature quickly, making them suitable for short-term financial needs. Whether you have upcoming bills to pay or want to keep your money ready for quick opportunities, money market funds offer a relatively safe and hassle-free way to manage your cash.
Relatively safer and Liquidity
Because money market funds are generally known to be safer than stocks, this also implies that cash management accounts may be a safer investment product than ETFs. Money market funds may also be considered as a relatively safer and more liquid investment product. They predominantly invest in low-risk, short-term assets, such as government securities and bank certificates of deposit. Therefore, investors who value both security and quick access to their funds may consider money market funds.
Known for its safety and liquidity, however, money market funds are not designed to be used as everyday savings accounts, as the former are investment products. In other words, the capital is not guaranteed by the Singapore Deposit Insurance Corporation (SDIC).
How can you trade money market funds in the Singapore market?
Investing in money market funds (MMFs) through platforms like Moomoo SG in the Singapore market can be an efficient way for investors to manage their funds. These steps provide a general overview of the process:
Understanding Money Market Funds
MMFs are relatively lower risk wealth management products that invest in short-term government treasury bills, institutional bonds, and other safer assets. They offer features like no lock-up period, and low minimum capital.
Trading money market funds via Brokerage Platforms
Using brokerages like Moomoo SG, investors can enjoy instant deposit and withdrawal capabilities, allowing them to quickly move funds between MMFs and stock trades or IPO subscriptions. Additionally, these platforms usually don't charge additional fees for subscribing or redeeming these funds.
Choosing a Fund
Investors have options like the SGD or USD versions of MMFs on Moomoo SG. Investors can view the Fund Prospectus and other related documents within the app, helping them make informed decisions.