Money Market Funds offer an avenue for saving money while at the same time earning interest. It differs from storing money in the bank in this aspect. MMFs are great for liquidity and their accessibility. The ideal savings channel allows for easy access to your money at any time without penalties like losing your interest rate.
Most MMFs in Kenya allow withdrawal at any given time with the accessing your money being immediately or after 24 hours to 48 hours. This makes MMFs ideal for emergency funds. Self-service channels like USSD and mobile applications for deposits or withdrawals are an advantage to the investors since they don’t have to physically go to their fund managers for such services.
For bank fixed deposits, if you access your money before the maturity date, you lose your interest. Flexibility is key since MMFs give freedom of when to invest and it is not limited with mandatory periodic deposits making it ideal for all income groups.
A good savings avenue earns interest greater than the inflation rate. The current inflation rate is at 2.8%. In Kenya, the Money Market Funds interest rates range between 18.0% and 8.7% with all fund managers exceeding the inflation rate. This factor ensures that the purchasing power of your savings increases. It is also key to ensure investors maintain or increase your standards of living despite the inflation rate.
MMFs are a low risk avenue where the risk of losing your money is low and the safety of your money is guaranteed. MMFs are low risk because they mainly reinvest your money in short term high return securities such as treasury bills.
Because such securities are offered by the government, the risk of default is low. MMFs in Kenya are regulated by the Capital Markets Authority (CMA) to maintain a high level of liquidity while limiting the type of assets they invest in to ensure they remain low risk. MMF interest rates are stable and if they fluctuate it is by a very small percentage with little significance. The stability can only be affected by extreme market conditions like the great recession in 2008.
