● The cash management funds mainly invest in short-term money market instruments and are a wealth management product with relatively lower risk.
● The features of the cash management funds mainly include relatively lower risk, higher liquidity, lower threshold, etc.
Understanding Cash Management Funds
If you have spare money in your securities account and don't want to take the additional risk of market volatility, how can you use the money to earn extra income?
Cash management funds (i.e., Money market funds, money funds) might be a good choice. It is a type of mutual fund that mainly invests in short-term debt instruments, cash, and cash equivalents of lower risks, such as short-term government debts and certificates of deposit.
Features of Cash Management Funds
1. Relatively lower risk and competitive returns
Cash management funds' investment targets are mainly short-term government debts, certificates of deposit, and other financial instruments with relatively lower risk. Generally, cash management funds are considered safer than stocks and bonds and offer potentially higher returns than traditional savings accounts.
But just like any other investment, there is no guarantee of returns.
2. Relatively higher liquidity: instant subscription and withdrawal
You can subscribe to or redeem cash management funds anytime you want to. The redeemed funds can be used immediately for stock trading or IPO subscriptions. Funds arrival time can be found via Trading rules on the Quoted Details page.
The fund manager has the right to suspend redemptions to control fund liquidity risk if a large-scale redemption occurs.
3. Relatively lower threshold and zero fees
Cash management funds have a very low subscription capital threshold. You could start from as low as S$/US$ 0.01.
On moomoo, the fund company has deducted the management fee from the fund assets, so investors don't need to pay additional fees when they subscribe and redeem.
4. Making money on weekends and holidays
The stock markets are closed on the weekends and holidays, but cash management funds generate returns every day. If the amount of money invested is not confirmed, there is no return.
Cash management funds also have some downsides, including:
1. Inflation risk: Over the long term, cash-managed funds are less likely to beat inflation than stocks do;
2. Default risk: Not all managers are trustworthy. Asset managers with good track records and brand-name investment platforms can be considered the better choices;
3. Interest rate risk: Investments in deposits, higher-quality money market instruments, or debt securities may decline in value as interest rates lower.
Who may Consider Investing in Cash Management Funds?
In conclusion, cash management funds may be a good choice for but are not limited to the following groups of investors who:
Have a lower tolerance for volatility but seek a higher return than savings accounts;
Have idle money but are new to the financial market;
Need higher liquid investment because they are waiting for opportunities in the market.
In the next lesson, we'll share with you why the return of cash management funds may outperform that of savings accounts.