How to choose a fund for save haven

For those who still keep traditional short-term savings, which is deposited only in bank accounts because they don't know where to keep the money. This article will introduce investment in Money Market Funds and Short-Term Fixed Income Funds as an alternative to suspending money.
 

Money Market Fund is the fund with the lowest risk. There is a policy to invest in government bonds or short-term debt securities. Most are under the age of 1 year, open for trading every business day. Now, the average return is 1.0% -1.4% per year. When investors sell money market funds, they will receive a return on the next business day (T + 1), this makes the financial liquidity be similar to savings. In addition, whenever we sell investment units in the money market fund, we will receive daily compensation automatically. The return will be in the form of Capital Gain or the price difference between the purchase price and the selling price. It means that the rewards are already reflected in the price. If you sell money market funds, you will immediately profit from the price difference. This is different from the savings that the bank will calculate interest every 6 months. If we withdraw money before the date the bank calculates the interest, we will not receive interest on that savings.
 

For example, Mr. Mangkhang bought the money market fund XYZ in the amount of 10,000 baht on January 2, 256x. After 1 year, this fund generates a 1% return. He decides to sell and will receive an immediate return of 100 baht with No tax, then he will receive a total of 10,100 baht into the account the next business day. In addition, Mr. Mangkhang will be able to sell the XYZ money market fund at any time and will receive a return proportionate to the investment period immediately.


While Mr. Orm has savings of 10,000 baht which has been deposited since January 2, 256x as well. The bank announced a savings interest rate of 1% per year. Mr. Om will not receive interest immediately. But the bank will transfer the money into the account at the end of June and the end of December (In case the bank declares interest every 6 months) If Mr. Orm withdraws the money before the date of interest calculation, he will not receive interest on that savings.


In addition to money market funds, there is another type of fund that can be money accommodation where we can sell investment units every day and receive money on the next business day as well with higher returns. This type of fund is a Short-Term Fixed Income Fund. The fund managers can increase the return on short-term fixed-income funds to be higher than money market funds by dividing the investment amount to invest in longer-lived debt securities, Private debt securities or foreign debt instruments or deposits in foreign countries.

Who is money market fund and short-term bond fund suitable for?

  • Investment beginners that may not be familiar with high-risk investments and want to get a higher return than depositing money.

  • Those who want to keep cash for short-term expenses, reserve as financial liquidity or in case of an emergency.

  • Those whose goal is to spend money for sure in the next 1 year which makes it impossible to take this lump sum at risk. Therefore, it may be necessary to hold funds at a money market fund or short-term fixed-income fund instead.

Money market funds have expenses as follows

  1. Management Fee, the expense that the management company charges from the investment management for us, is around 0.5 - 0.6%

  2. Trustee Fee acts as an agent to look after the fund's assets for investors, is approximately 0.1%

  3. Registrar Fee for organizing various events relating to the registration of unitholders is approximately 0.05%


The NAV (Net Asset Value) that we see on the website of each management company has deducted all the expenses that the Fund has collected. We can calculate the return from the difference between the sale price and the purchase price immediately.
 

Regarding the selection of money market funds and the short-term fixed-income fund, it is not difficult to choose because they are low-risk funds. 


Investors can prioritize the returns that each fund can do (Ranking of returns). You can compare past returns for more information by visiting www.morningstarthailand.com or compare the return from the money market fund to the average fixed deposit interest rates of 3 or 5 large banks. If the mutual fund invests in short-term debt securities, then compare the returns with the debt instruments or government bonds or private debentures for a similar term.

In comparison, if the return on investment in mutual funds is close to the fixed deposit interest rates, you may choose a fixed deposit because the interest rate on fixed deposits is the interest rate that we will exactly receive. While the return of the fund is only historical data, it may possibly increase or decrease further according to the interest rate trends of the world and Thailand. However, it also depends on how long you need to rest your money.


However, both money market funds and short-term fixed-income funds still provide a low rate of return (up to 2.0% per year), so we should use such funds as short-term accommodation only. If the investors want to create higher returns in the long run, they should invest by arranging investment portfolios through Asset Allocation to meet their investment goals.



Nipapun Poonsathianrasap CFP

Independent Financial Advisor, Writer and Lecturer.