For years, money-market mutual funds have offered better returns than bank deposits (even with the current slide in fixed income yields).
They are also just as accessible and safe.
Assets under Management (AuM) held by Money market funds have surged in recent years in Nigeria and now stands at N800 billion as at September 04, according to Securities and Exchange Commission (SEC) data.
However, the Central Bank of Nigeria, has driven rates so low that a lot of investors are seeking alpha outside financial assets meaning money market funds may not continue their rapid growth in the medium term.
How do money-market funds function?
Money market funds are similar to banks but not quite. While both take deposits that can be withdrawn at any time, banks use their deposits to make loans that can tie up the money for years.
While money market mutual funds, also offer investors the right to withdraw their money anytime, they mitigate their liquidity risks by restricting their investments to short-term, high-quality assets and cash equivalents like Treasury bills and commercial papers (IOUs that companies issue to meet their short-term funding needs, such as payrolls).
Their aura of safety has made money-market funds widely used by everyone from corporate treasurers to households as easily-accessible places to put short-term cash while typically getting better interest than in a bank account.
There are currently 23 active money market mutual funds registered with the SEC in Nigeria. The largest one being the Stanbic IBTC money market Fund which controls 40 percent of the market with AuM of N326 billion as at September 04.
This is closely followed by FBN Money Market Fund by FBN Capital Asset Management at 27.74 percent or N222 billion and ARM Money market fund with assets under management of N92 billion.