Thinking about investing in a Money Market Fund

Stargunner

dllive said:

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?

The unit price is calculated once a day just like any other fund and it generally goes up a little higher every day.

Doctor_Who

dllive said:

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?

Here's a chart for the RL STMMF acc over the past 3 years, the gain in unit price is gradual and not every 6 months.

Ciprico

Could also consider Gilts, for example TN24 as below is guaranteed to be worth £100 in about 6 months, which is almost certain more than a MM will return in same timeframe. Just don't sell before it matures, and your return is 100% predictable, unless UK PLC goes bust - in case no £'s anywhere are safe.

masonic

Ciprico said:

Could also consider Gilts, for example TN24 as below is guaranteed to be worth £100 in about 6 months, which is almost certain more than a MM will return in same timeframe. Just don't sell before it matures, and your return is 100% predictable, unless UK PLC goes bust - in case no £'s anywhere are safe.

YTM based on yesterday's closing price was 5.1%, whereas the return from a MM fund could be higher or lower depending on policy over the rest of the year.

dllive

Interesting about gilts. I know very little about them (other theyre government bonds) and have never bought them. Perhaps Ill dip a toe in and buy and buy some as a learning experience.
- Do I get an email when in 6 months to say its paid back or something?
- How do you know what the return will be? If I buy at £97.66 and sell at £100, isnt that only a 2.34% gain?
(Sorry, more stupid questions! This is new territory for me)

Doctor_Who

dllive said:

Interesting about gilts. I know very little about them (other theyre government bonds) and have never bought them. Perhaps Ill dip a toe in and buy and buy some as a learning experience.
- Do I get an email when in 6 months to say its paid back or something?
- How do you know what the return will be? If I buy at £97.66 and sell at £100, isnt that only a 2.34% gain?
(Sorry, more stupid questions! This is new territory for me)

That's only for ~6 months until maturity, so annualised is higher. There's also a small coupon payable at maturity.
I'm using low coupon/short term gilts outside of tax wrappers because the gain is exempt from CGT.

More on gilts here:

https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

mark_cycling00

Are my calculations correct:

The gilt above can do 4.8% annually.
SONIA (IE money market fund) is 4.93% now but this is variable 
A six month fixed rate savings account is 5.5%

The gilt could be bought within an ISA.
Does the gilt pay income over the remaining 6 months too?

(FTSE world tracker up 4.5% in three weeks but that's a different level of risk)

Thanks 

Doctor_Who

mark_cycling00 said:

Are my calculations correct:

The gilt above can do 4.8% annually.
SONIA (IE money market fund) is 4.93% now but this is variable 
A six month fixed rate savings account is 5.5%

The gilt could be bought within an ISA.
Does the gilt pay income over the remaining 6 months too?

(FTSE world tracker up 4.5% in three weeks but that's a different level of risk)

Thanks 

TN24 has a YTM of ~5.1% if bought at ~97.56 - see here
Money market funds tracking SONIA are around ~5% (you need to account for the fund and platform fees). If BoE rate rises/falls SONIA will follow.
Buying gilts is platform dependent, with some you can do this online for some gilts, otherwise you have to phone.
TN24 will pay a small coupon on redemption (half of 0.125% is paid twice a year; only the final payment is remaining for this gilt).
The main benefit of nominal gilts is the tax free gain when held outside of a tax wrapper. Since most of the return on TN24 and TN25 is capital gain (the coupon is small but taxable) then most of the return is free of tax. Holding in an ISA has little benefit (except for the coupon).
Holding a money market fund outside a tax wrapper means all of the interest is taxable income (obviously tax free in an ISA).

Ciprico

I would question holding gilts in an ISA or Sipp has little benefit.  Depending on various factors, age being one, having a few years spending money in a cash like vehicle can be helpful....

I would argue more useful than say a vls60 style fund as you have more control when selling.

flopsy1973

Would I need to fill in tax return if max to my cgt allowance