Thinking about investing in a Money Market Fund

InvesterJones

Qyburn said:

Quick question, the actual funds discussed show past returns lower than instant saver interest rates, is the expectation that these returns will increase?

Are you comparing like for like (eg historical MMF return vs historical saver interest rates over the same period)? A common mistake is comparing past returns for one vs current rates for another.

Stargunner

Qyburn said:

Quick question, the actual funds discussed show past returns lower than instant saver interest rates, is the expectation that these returns will increase?

The past returns are much lower because the bank  rates were much lower at that time. as were savings rates. The current SONIA rate is 4,9% which these funds are achieving, less charges.They could go up another 0.25% next week after the BOE decision.

Albermarle

InvesterJones said:

mark_cycling00 said:
You're pretty late to the money market party which implies you'll be late getting out of it and might miss out on the gains when they come 

Actually, unlike some investments, money markets aren't ones you need to buy low, sell high, so there's no missing out per se - they are very short dated so pick up increases in SONIA rate (the gains) extremely quickly. If it's an open ended investment company then the more people that buy the fund the more of the underlying assets they will purchase, and conversely, if people sell the very liquid and short term nature of the underlying assets means there shouldn't be much of a hit to the remaining holders.

I think that @mark_cycling00, meant that switching more into cash/MMF's now meant you could miss out on the market upturn that may be around the corner ( or may not) 

masonic

Qyburn said:

Quick question, the actual funds discussed show past returns lower than instant saver interest rates, is the expectation that these returns will increase?

You need to calculate the current gradient of the total return graph, this has been consistently above instant access saving rates for quite some time. As a rough guide, take the 1 month return of 0.4% and raise to the power of 12, e.g. 1.004^12 = 1.049 or 4.9% annualised.

dllive

I think Ive decided to go with Royal London Short Term Money Market Y Acc. Then sell chunks of it over the next year or so to buy into a global index fund when I feel theres some dips (with all the caveats of trying to time markets etc...!). I think this is preferable than just holding it as cash in my ISA hoping some dips will occur, or investing it all now when I feel the markets are high. (Im happy to be corrected if you think this is silly!)

A few questions please:

- Is there a benefit to having accumulation over income? 

- How is the interest paid (or reinvested if in Acc class)? Is it monthly or daily? When I sell I presume its best to wait until just after the interest has been paid/reinvested?

- It gives a distirbution yield of 2.21%. Does this mean interest is 2.21%? https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/r/royal-london-short-term-money-market-class-y-accumulation . i dont think it does becuase the chart is showing just over 5%

Thanks

Doctor_Who

- It gives a distirbution yield of 2.21%. Does this mean interest is 2.21%? https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/r/royal-london-short-term-money-market-class-y-accumulation . i dont think it does becuase the chart is showing just over 5%

The fund factsheet shows a yield of 4.55% as of 30 June 2023:

https://www.fundslibrary.co.uk/FundsLibrary.DataRetrieval/Documents.aspx/?type=packet_fund_class_doc_factsheet_private&id=752b25cb-c7cb-4c5d-8203-e43f93a170ce&user=iEZ7PRfRowbK8PrXzL9yAR+yn+RzLFhebEnYeVxyDOkk9JOWt+Nw3GrHc2sHmBK3&r=1

InvesterJones

dllive said:

A few questions please:

- Is there a benefit to having accumulation over income? 

- How is the interest paid (or reinvested if in Acc class)? Is it monthly or daily? When I sell I presume its best to wait until just after the interest has been paid/reinvested?

- It gives a distirbution yield of 2.21%. Does this mean interest is 2.21%? https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/r/royal-london-short-term-money-market-class-y-accumulation . i dont think it does becuase the chart is showing just over 5%

Accumulation means you don't have to wait for the distribution to be re-invested, but makes calculating income harder.

According to the link you provided, Bi-annually for income - nothing is taken away if Acc therefore no need to reinvest.

Also according to your link, that yield was based on information from 30th November 2022, so somewhat out of date. As mentioned above, the fund factsheet is dated 30th June, so a little more recent, but still not reflecting much of the increase in rates end of June. What you can do is look up the performance for the last month, and then annualise that - which will tell you what the yield will be if SONIA rates don't increase in a few days. If they do, then you can expect yields to very quickly catch up to that new rate, so it's just much easier to take SONIA minus fees as the likely yield.

dllive

Thanks guys, apologies for all the questions! This is very useful and Ill forge ahead.

Rollinghome

If it's going into an ISA, an accumulation version will avoid having odd divis lying around in your account, which you probably won't want to withdraw, and will have the hassle and possible cost of re-investing.
If in a non-ISA, with an income version you'll see the divis paid, which makes completing your tax return easier, and you can usually have them automatically forwarded to your bank account.

dllive

Rollinghome said:

If it's going into an ISA, an accumulation version will avoid having odd divis lying around in your account, which you probably won't want to withdraw, and will have the hassle and possible cost of re-investing.
If in a non-ISA, with an income version you'll see the divis paid, which makes completing your tax return easier, and you can usually have them automatically forwarded to your bank account.

Thanks. Ill definitively get the accumulation class.
Im still slightly confused about .how the interest is accumulated. Is it just reinvested into the fund each day, or just biannually? For example, if I invest in this MMF for 2 days, then sell, will I have made a gain? Or do I need to leave it in there for at least 6 months for it to gain anything?