Why?

Paul Hansen at Stanlib says that locally the money market funds still have huge amounts of investors’ money.

It seems that the retail market for money market funds is growing, and the two big players in the sector- Stanlib and Absa -hold just under R50bn in these funds, between them.

“We are not sure why investors are still in these funds,” says Hansen and Rene Miles, head of investments at Channel Life concurs.

Consider that the returns from these funds would be about 3.9% after tax, at the end of the year, and the inflation rate is at around 5.1%, as predicted by the Stanlib house view, this means that investors in these funds will be going backwards.

“There are many investors who have not renewed their investment contracts, opting instead to put the cash in the bank or in money market accounts while they decide what to do, looking around at the various investment options,” says Channel Life's Miles.

“The problem however is that money in traditional bank accounts may not be earning meaningful interest and there are also the tax implications to consider if an investment is kept in a money market account for too long. These costs may far outweigh the interest earnings.”

According to Truman Zuma at Stanlib, retail investors are using the money market funds as transaction accounts. “They are parking their money there, and calling on it when they need it.”

The rates are more favourable that bank cheque account and market-linked accounts. A similar situation developed a couple of years ago when retail bank customers were using the home loan accounts as transaction accounts because of the good rates.