In periods of rising interest rates, money market funds often attract attention for one simple reason: yield. Investors scan weekly performance tables, compare headline returns, and move their savings to whichever fund appears to be paying the most. While yield is an important consideration, relying on it alone can lead to sub-optimal investment decisions.
Money market fund yields are not fixed. They fluctuate with changes in interest rates, portfolio composition, and cash flows into and out of the fund. A fund that tops the performance table this month may not do so next quarter. Chasing the highest yield can therefore result in frequent switching, which undermines the very purpose of money market funds, capital preservation and stable returns.
Risk profile is a critical but often overlooked factor. While money market funds are generally considered low risk, they are not identical. Differences arise from the quality of instruments held, the maturity structure of the portfolio, and exposure to specific issuers. For instance, funds such as the Cytonn Money Market Fund emphasize short-dated instruments and regulatory compliance, illustrating that how returns are generated is just as important as how high they appear.
Liquidity is another key consideration. Investors use money market funds as a substitute for cash, expecting quick and reliable access to their funds. Redemption timelines, cut-off times, and settlement processes vary across fund managers. A slightly lower yielding fund with predictable access, such as Cytonn MMF’s relatively straightforward withdrawal process and low minimum investment thresholds, may be more suitable than a higher yielding alternative with restrictive access terms.
Consistency also matters more than peak performance. A fund that delivers steady, competitive returns over time often serves investors better than one that oscillates between high and average yields. Consistency reflects disciplined portfolio management and prudent risk controls, qualities that become especially important during periods of market stress.
The size and stability of a fund can further influence outcomes. Larger funds typically benefit from better diversification and stronger bargaining power when placing funds in the money markets. While size alone is not a guarantee of safety, extremely small or rapidly fluctuating funds may face higher operational and liquidity risks.
Finally, the quality and track record of the fund manager should not be ignored. Experience, governance, and transparency play a significant role in how well a fund navigates changing market conditions. Clear reporting and regulatory oversight, such as that required of CMA regulated funds, are signs of a manager focused on long-term investor confidence rather than short-term performance rankings.
In the end, yield matters, but it is only one piece of the puzzle. For investors, the best money market fund is not necessarily the one with the highest return today, but the one that balances yield, safety, liquidity, and consistency over time.
Start your investment journey today with the Cytonn Money Market Fund. Call + 254 (0)709101200 or email sales@cytonn.com
