MONEY MARKET FUNDS
Money market funds are a particular kind of Retail funds which need to comply with all the requirements for Retail Funds (UCITS or No-UCITS) and some more particular requirements with respect to the investment policy and strategy. Furthermore the main objective of the Fund shall be to preserve the principal and provide returns in line with the money market rates.
These types of funds are interesting for investors looking for regular and protected returns. While these returns are not high, its liquidity provides a great advantage for investors who can subscribe and redeem even on daily basis. They are a good instrument to place cash while more attractive or long-term investment opportunities appear.
The investment scope of these funds is very restricted by law. These limitations try to align the investment strategy of the Fund with the considerations of preserving the principal and high liquidity of the investments. The Money Market Funds may only invest in the following instruments in accordance with the licence conditions issued by the Maltese Authority:
- Money market instruments dealt in a Member State or other EEA State Regulated Market. These markets have to trade regularly, be open to the public and appear in the list prepared by the European Commission. A Money Market Fund might invest in Money Market Instruments dealt in a third country Regulated Market when they comply with the mentioned requirements and they are approved by the competent authorities or they are disclosed in the Fund rules.
- Money Market Instruments issued or guaranteed by a Member Stated Authority, Central Bank, the European Central Bank, the Community, the European Investment Bank, a third Country or an International Organization where at least one Member State belongs.
- The Money Market Fund can invest in instruments issued by an undertaking any securities dealt on a regulate market as stated above.
- The Money Market Fund is authorised to invest in Money Market Financial Instruments issued or guaranteed by an establishment subject to prudential supervision, in accordance with the EU legislation.
- Each Member State may approve relevant bodies in which Money Market Funds are authorised to invest where such bodies provide investor’s protection equivalent to the above description and its capital and reserves amount at least €10 million.
The Money Market Fund shall invest only in high quality Money Market Instruments, this high quality must to be assessed by the Management Company.
A Money Market Fund cannot have exposure to equity and commodities, and it is only authorised to invest in derivatives with hedging purposes.
The Money Market Fund shall issue daily net assets value and be open for daily subscriptions and redemptions of units. This provision may be switched to weekly redemption and subscription when the Fund is only marketed as an employee savings scheme.
Money market Funds are divided by law in Short-term Money Market Funds and Money Market Funds. Each class of Money Market Funds shall comply with specific requirements regarding the investment instruments they are allowed to invest.
A short-term money market fund shall invest only in securities with a redemption date equal or less than 397 days and residual maturity. The investment portfolio shall have an average maturity of less than 60 days and an average life of not more than 120 days. The short-term money market fund can only invest in other short-term money market funds. It should have a constant or fluctuating net assets value. When it is marketed as a UCITS Fund, it should clearly indicate in its KIID that is a Short-term Money Market Fund.
A Money market Fund shall invest in securities with a residual maturity until redemption of less than two years and the next interest rate reset date shall be less than 397 days. The total average maturity period of the investment portfolio shall not exceed an average maturity of 6 months and an average weighted life of 12 months. Finally they only can invest in collective schemes labelled as Short-term money market Funds and Money market funds. The net assets value of a Money Market Fund shall be a fluctuating net assets value.
While these fund are highly regulated and with a narrow investment scope, they can be considered attractive for retail investor looking low risk and regular returns, and for more risk-tolerant investors during high volatility market episodes or seeking liquid investments while new investment opportunities pop up.
