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Michael Mosi

How Safe Are Money Market Funds?

An existed Kenyan man holding money in his hands

Money market funds are among the safest liquid assets you could add to a portfolio. They invest in short-term, high-quality, low-risk debt instruments like treasury bills, certificates of deposit, and commercial paper. Money market funds (MMFs) are popular for investors seeking low-risk, liquid investment options to grow their money. This article explores the safety of money market funds, specifically looking at the Ndovu fund, providing insights into their role in the investment landscape.


Understanding Money Market Funds

Money market funds are ideal for holding your money while earning a modest return that high-yielding savings accounts can not offer. They are suitable financial instruments for short-term financial goals like saving for major purchases or planning for a well-deserved vacation. For those considering Ndovu investments, the recently launched Ndovu fund that offers a 15.5% return serves as a reliable option to diversify your portfolio.

Safety Features of Money Market Funds

  1. Regulatory Framework: The Capital Markets Authority regulates money market funds under the Capital Markets Act, which outlines guidelines for their operations. This Act ensures funds invest in low-risk securities and maintain enough liquidity to fulfill withdrawal requests. 

  2. Credit Quality: MMFs primarily invest in high-quality, short-term debt instruments issued by governments, corporations, and financial institutions. These investments are often rated by credit agencies, and funds typically limit their exposure to lower-rated securities. For instance, the Ndovu fund prioritizes investments in high-grade instruments, which helps mitigate credit risk.

  3. Diversification: Money market funds spread investments across various securities, reducing the impact of any single default on the overall fund. This diversification is crucial for maintaining stability and minimizing risk. By choosing a fund like the Ndovu investment, investors can benefit from this built-in diversification without needing to manage multiple individual securities.

  4. Liquidity: One of the key advantages of money market funds is their liquidity. Investors can usually redeem their shares quickly, often without penalties. This makes MMFs an attractive option for those looking for a safe place to store cash while still earning some interest. With the Ndovu fund, investors can access their money when needed, providing peace of mind.

  5. Regular Reporting and Disclosure: The CMA requires MMFs to provide regular reports and disclosures to ensure transparency regarding their holdings, performance, and risks. This oversight helps protect investors by ensuring they have access to important information about their investments.


Potential Risks

While money market funds are considered safe, they are not entirely risk-free. Here are some factors to consider:

  1. Interest Rate Risk: Money market funds are sensitive to changes in interest rates. When rates rise, the yields on new securities increase, which can lead to lower net asset values( the value of each share an investor holds) for existing investments. Although MMFs aim to maintain a stable net asset value, there may be temporary fluctuations during periods of rising rates.

  2. Market Conditions: When markets go through major disruptions like the 2008 financial crisis, even high-quality securities face challenges. As much as major recessions like the Great Recession are not common, it emphasizes the importance of understanding that market conditions can impact even the safest of investments.

  3. Inflation Risk: Compared to investment options like stocks or bonds money market funds yield lower returns. The safety and stability provided by money market funds come with the disadvantage of diminished returns during periods of high inflation because the interest rates can’t keep up with the rate of inflation. This is one of the reasons money market funds are not recommended for some long-term investments.


Money market funds, including the Ndovu fund, represent a safe and liquid investment option for those looking to preserve capital while earning a modest return. With regulatory oversight, high credit quality, diversification, and liquidity, MMFs offer a reassuring choice for conservative investors. However, it is essential to remain mindful of potential risks, such as interest rate fluctuations and inflation.


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