Money Market Funds (MMFs) are a type of investment mutual fund that invests in short-term, high-quality, and low-risk financial instruments like government bills and bank deposits. They are designed to offer investors a way to preserve capital while providing a modest return and high liquidity. MMFs are a safe place to keep your company’s cash while still earning some return.
Key Characteristics of MMFs
Low Risk: MMFs typically invest in assets such as government securities, short-term corporate debt, or bank deposits, which are generally considered safe and stable.
High Liquidity: Investors can buy and sell MMF shares within a few days, making them almost as accessible as a regular bank account.
Diversification: By pooling money from multiple investors, MMFs spread investments across various issuers, reducing exposure to any single entity.
Regulated in the EU: In the European Union, MMFs are strictly regulated under the EU Money Market Fund Regulation (MMFR) to ensure safety, transparency, and liquidity.
Why SMEs Might Use MMFs*
Cash Management: MMFs can serve as an alternative to leaving large cash balances in a bank account, offering a potential return while maintaining quick access to funds.
Mid-Term Investment: Suitable for parking funds that are not needed immediately but may be required in the future (e.g., within half a year).
Stability: MMFs aim to minimise fluctuations in value, which is useful for businesses that need predictability.
*This is just for informational purposes and does not constitute investment advice.
What MMFs Are Not
MMFs are not the same as bank deposits – they are investments, not guaranteed savings.
They do not offer high returns – they are designed for stability and liquidity, not for aggressive growth.
There is always some level of risk, even if very small, including the possibility of losing the invested capital.
How are MMFs traded?
Unlike stocks, which are traded continuously on exchanges, Money Market Funds (MMFs) are priced and traded only once per day. This is because:
Daily Valuation (NAV): The value of an MMF is calculated based on the net asset value (NAV) of its holdings, which is determined at the end of each business day.
Operational Processing: Orders to buy or sell are collected throughout the day and executed at the next available NAV, not instantly.
Settlement Time: In some cases, the trade may settle on the following business day, meaning you might not see the transaction reflected immediately.
Thus, when buying or selling MMF for a certain amount, you will not see a change in the amount of the asset immediately. The order will wait from several hours to several days for execution. You will be able to see information about the settlement cycle and cut-off time in the asset menu: for example, MMF with settlement cycle T+1 and cut-off time 12:00 will be bought the next day if ordered until 12:00.
*Vivid does not provide any financial advice and investing always involves risks. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. You may not get back the amount originally invested. You can find more information about Money Market Funds and the risks of investing in financial instruments here.