Money Market funds

ChilliBob

Hello everyone, 

I've seen a couple of mentions in other threads here about Money Market funds, some people are using them. 

I've seen the example of the Royal London fund a few times. 

These are pretty new to me, so, is it basically:

1. Invest into them like any other OEIC or ETF.
2. Returns will steadily increase over short periods, e.g. Week, month etc.
3. Interest rate similar to BOE, so better than other easy access, not as good as some fixes, but has full flexibility.
4. Taxed as interest, like a, savings account, if unsheltered.
5. Dealing costs need to be factored in - would be foolish to use this like easy access!
6. This isn't risk free like savings, but the risks are just one notch up. 

This assumes platform costs are ignored as already covered by existing investments, for most, in these cases I'd have thought. 

So, yeah, do you use them, have I missed anything? 

grumbler

I don't think that the term "interest rate" is appropriate when you speak about investments.

Possibly the same with the word "steadily".

cloud_dog

ChilliBob said:

Hello everyone, 

I've seen a couple of mentions in other threads here about Money Market funds, some people are using them. 

I've seen the example of the Royal London fund a few times. 

These are pretty new to me, so, is it basically:

1. Invest into them like any other OEIC or ETF.
2. Returns will steadily increase over short periods, e.g. Week, month etc.
3. Interest rate similar to BOE, so better than other easy access, not as good as some fixes, but has full flexibility.
4. Taxed as interest, like a, savings account, if unsheltered.
5. Dealing costs need to be factored in - would be foolish to use this like easy access!
6. This isn't risk free like savings, but the risks are just one notch up. 

This assumes platform costs are ignored as already covered by existing investments, for most, in these cases I'd have thought. 

So, yeah, do you use them, have I missed anything? 

Some funds provide their returns either by the increase in the unit price, e.g. CSH2 or by a monthly payout e.g. Vanguard Sterling Short Term Money Market fund.  Similar focus but different goals / mechanics for providing the return.

The above also plays in to how the return accrues or is paid out, e.g. income or the need to sell.

It is something we are actively pursuing for our early retirement pots as a way of simply de-risking the investments / pot.

ChilliBob

grumbler said:

I don't think that the term "interest rate" is appropriate when you speak about investments.

Possibly the same with the word "steadily".

I think, if I have understood these correctly then, yes, in this quite unusual case, both apply really. But that's one of the things I'm looking to validate.  

brucefan_2

ChilliBob said:

Hello everyone, 

I've seen a couple of mentions in other threads here about Money Market funds, some people are using them. 

I've seen the example of the Royal London fund a few times. 

These are pretty new to me, so, is it basically:

1. Invest into them like any other OEIC or ETF.
2. Returns will steadily increase over short periods, e.g. Week, month etc.
3. Interest rate similar to BOE, so better than other easy access, not as good as some fixes, but has full flexibility.
4. Taxed as interest, like a, savings account, if unsheltered.
5. Dealing costs need to be factored in - would be foolish to use this like easy access!
6. This isn't risk free like savings, but the risks are just one notch up. 

This assumes platform costs are ignored as already covered by existing investments, for most, in these cases I'd have thought. 

So, yeah, do you use them, have I missed anything? 

Having done a very small amount of research this morning, I believe that with Hargreaves Lansdown, for example, there are no delaing costs for these funds.

Happy to be corrected by anyone with more experience/knowldege.

Best Wishes,
David

grumbler

ChilliBob said:

 But that's one of the things I'm looking to validate.  

For this you can just look at historical data.

ChilliBob

That's interesting, I think that might be just how that platform charges tbh, I'm pretty sure I'd pay charges on both II and iweb 

Mr_blibby

If its I have a reasonable slug in the Lyxor Smart overnight CSH2 in my AJ Bell Sipp - £9.95 transaction charge and as its an ETF then max £120 charges a year, which for me makes it pretty close to getting base rate. Doesn't have the £85K bank protection, but I already dont have that just leaving it as cash, so worth the small risk I think

Ciprico

What return does it give...? 

NedS

Most short term money market funds aim to track the overnight SONIA benchmark index, which is currently 3.97% so you should achieve ~4% less fees. Rates should largely track BoE base rates, hence ~4% currently.

GeoffTF

ChilliBob said:

Hello everyone, 

I've seen a couple of mentions in other threads here about Money Market funds, some people are using them. 

I've seen the example of the Royal London fund a few times. 

These are pretty new to me, so, is it basically:

1. Invest into them like any other OEIC or ETF.
2. Returns will steadily increase over short periods, e.g. Week, month etc.
3. Interest rate similar to BOE, so better than other easy access, not as good as some fixes, but has full flexibility.
4. Taxed as interest, like a, savings account, if unsheltered.
5. Dealing costs need to be factored in - would be foolish to use this like easy access!
6. This isn't risk free like savings, but the risks are just one notch up. 

This assumes platform costs are ignored as already covered by existing investments, for most, in these cases I'd have thought. 

So, yeah, do you use them, have I missed anything? 

1. Yes.
2. Yes. Daily for the OEICs. Volatility is very low. Look at the charts.
3. The trackers track SONIA using interest rate swaps. The managed funds aim to beat SONIA with a variety of very short term interest bearing instruments issued by the most credit worthy banks. (They also use derivatives and any other tricks that they can devise.) SONIA is a whisker under the BoE base rate.
4. Taxed as a combination of interest and capital gain, as with a bond fund.
5. £5 to buy or sell with iWeb. It pays to use a money market fund for easy access for surprisingly small amounts of money, but the tax reporting would be a deterrent.
6. Nothing is risk free. If you are lending money for a few days to 60+ top-rated banks, the risk of serious loss is pretty low. Using interest rate swaps with one big bank may be a bit more risky. The ETFs have small market caps and could have significant pricing anomalies. If your cash fund is few percent of the size of your equity portfolio, you will not be increasing your overall risk profile by much.

I picked the Royal London Short Term Money Market Fund Y Income. It is a large UK domiciled managed OEIC.