Money market mutual funds are investment portfolios with holdings in cash, deposits and short-term debt securities. What are the advantages and benefits of money market mutual funds?

Definition of Money Market Mutual Funds

Money Market Mutual Funds are investment portfolios managed by investment managers and all funds are invested in cash (time deposits) and/or short-term debt securities or money market products.

Short-term debt securities have a duration of less than 1 year. Corporate or government bonds, for example, that mature this within the year.

Money market mutual funds are investment products that are Low Risk, Low Return. More or less the return of money market mutual funds is 2.5% - 5% per year.

Examples of Money Market Products

Some examples of MONEY MARKET products in Indonesia:

Government Bonds (SUN) Government bonds are securities issued by the Indonesian government (Ministry of Finance) such as Fixed Rate (FR), Indon, Indois.

Term Deposit (TD) Time deposits are banking products. Investors save money for a certain period and earn interest.

Bank Indonesia Certificates (SBI) Securities issued by Bank Indonesia.

Money Market Securities (SBPU) Securities issued by Commercial Banks.

Banker's Acceptance (BA) BAs are securities in the form of term notes for foreign trade (export or import) and can be traded on the money market.

Call Money Call Money is a short term loan (less than 7 days) between banks.

Money Market Product Examples

The following is an example of a money market mutual fund fund fact sheet: TRIM Kas 2

Disclaimer: this fund fact sheet example is meant as an educational tool, not investment advice. If you wish to invest in mutual funds please contact a Moduit wealth advisor.

Source: Fund Fact Sheet Trim Kas 2 from Trimegah-am.com

At the top of the mutual fund summary is the product name (Fund Fact Sheet Trim Kas 2), the investment manager’s logo (Trimegah Asset Management) and the mutual fund summary period (December 30, 2022).

Some mutual fund summaries also state the type of mutual fund, for example a money market fund.

A mutual fund summary usually contains investment manager profiles, investment objectives, investment risks, risk classification, mutual fund information, investment costs, investment policies, asset allocation and top holding positions.

Based on the summary of the Trim Kas 2 mutual fund as of December 30, 2022, it is stated that the allocation of bond assets (short term) is 72.68% and the remaining (time deposits) are 27.32%.

The top holding (%) of the Trim Kas 2 is in Bonds and Sukuk.

The next information to note is is the performance of the mutual fund, particularly YTD (year to date) performance or since the beginning of the year.

If you wish to invest in mutual funds please contact a Moduit wealth advisor.

Advantages and Benefits of Money Market Mutual Funds

Money market mutual funds are LOW RISK, LOW RETURN investments. With low price fluctuations, this money market mutual fund is suitable for short term needs.

Short-term needs refer to financial needs in less than one year, for example:

Cash Management

Cash management can be implemented in a company. For example, instead of all the company's money being in savings, returns can be maximized by using money market mutual funds.

One of the advantages of money market mutual funds is that they are FLEXIBLE, which means:

• no lock-up period,
• minimum subscription starts at IDR 100,000
• can be purchased online,
• very low buying and selling fees (some at IDR 0),
• money market funds are non-taxable,
• secure and supervised by OJK (Financial Services Authority).

Emergency Fund

Money market mutual funds are very suitable for emergency fund needs, because of their flexible nature.

However, the emergency fund also needs to be partially divided into a savings account, because money market mutual funds can only be bought and sold on WORKING DAYS.

Liquidity or “Parking” Funds

Money market mutual funds can also be used as PARKING FUNDS or for liquidity purposes, when investing.

Sample case: Based on research by several stock analysts, it turns out that ABCD shares are attractive to buy at a price of Rp 1,000. Currently, ABCD's shares are priced at Rp 1,500 and tend to increase.

Instead of buying shares at a price of IDR 1,500, you can "park your money" into money market mutual funds. When ABCD's share price is close to IDR 1,000, you can switch from money market mutual funds to stocks.

Investment Risks of Money Market Mutual Funds

Generally, investment risk is divided into two, namely systematic risk and unsystematic risk.

Unsystematic Risk in Money Market Mutual Fund Investment

Unsystematic risk originates from factors in selecting money market mutual fund products and the asset manager.

Examples of unsystematic risk:

Risk of Decrease in Unit Value

Money market mutual funds can increase or decrease in price, which will affect their value. Example:

Looking at the monthly performance chart above, there is still increase and decrease movements.

The way to mitigate the risk is to conduct regular investment reviews. You may consider using Moduit's wealth advisory service to conduct regular investment reviews.

Liquidity Risk

Liquidity risk can occur when: The maximum time for withdrawal of money market mutual funds is T+7 (7 working days). Generally, money market mutual funds can be disbursed within 1-2 working days (Saturday, Sunday and public holidays are not counted). You want to cash out and get a certain profit, but the price at the time of redemption is lower that that.

The way to mitigate the risk is to manage and plan when the money needs to be disbursed, and not make decisions suddenly.

Default Risk

The risk of default occurs if the investment manager engages in misconduct,, for example buying debt securities with a maturity of more than 1 year.

The way to mitigate the risk is to choose an investment manager who is experienced and has a good track record.

Dissolution and Liquidation Risk

The risk of dissolution or liquidation occurs if the mutual fund product commits a violation, for example "promising a FIXED return".

OJK regulations regarding the Code of Conduct for Investment Managers No 17/POJK.04/2022 article 12 number 1, letter b point 7 states:

Article 12 In managing investment portfolios in the interest of Investment Products, Investment Managers, members of the board of commissioners, members of the board of directors, members of the Investment Committee, members of the Investment Management Team, and/or employees of the Investment Manager are prohibited from:

provide benefits to customers and/or other Parties who: 7. aims to promise a return on a certain level of income and/or something equivalent that will be obtained by the customer.

The way to mitigate the risk is to choose an investment manager who is experienced and has a good track record.

Systematic Risk in Money Market Mutual Fund Investment

Systematic risk is risk originating from macro factors or economic conditions of a country.

Examples of unsystematic risk:

Risk of Changes in Political, Economic and Tax Regulations

Currently, money market mutual funds are not subject to tax, so PROFITS FROM MUTUAL FUNDS are not subject to tax.

Risk of Fluctuations in Exchange Rates or Interest Rates

The risk of exchange rate fluctuations will have no effect, if the money market mutual fund and its assets are in Rupiah.

Interest rate risk will not have much effect on money market mutual funds, because closer to maturity the bond price will go to its par value of 100%.

Interest rate risk will have an effect, if the majority of money market mutual funds contain time deposits. When the benchmark interest rate drops, deposit rates will fall and this will affect the performance of money market mutual funds.

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