Investing in Money Market Mutual Funds
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What do you do when you have extra cash left at the end of the month? Do you keep it at home or deposit it in the bank? Do either of the options give you any kind of profit?
If you have excess cash that you may need next month or maybe within a year, then its better to invest that money in a cash fund. Cash funds also known as money market mutual funds are very similar to investing money in a bank’s current or saving account, where the fund takes your money and invests it. However, unlike a current account where you don’t get any return or a savings account where the return doesn’t even match up with inflation. Cash funds can help you earn a higher return.
The return from these funds is relatively safe. This is because these cash funds effectively pool money from thousands of small savers and place them with banks. Their large size allows them to negotiate much higher returns than an individual can get from a bank. Where a small account holder gets a 4-5% return on their bank deposits, they can get much higher returns by routing their money through a cash fund, even after adjusting for fund fees. The average return for Islamic cash funds was 6.0% during September 2018.[1]
Cash funds are also very liquid and convenient. This means they can easily be converted into cash without any loss in its value. You can also withdraw your money anytime.
You can have access to these funds through Assets Managed Companies (AMCs) that are registered and licensed with the SECP or through their AMCs registered fund distributors like us, Tejoree.
