Money market funds – How your cash could work for you

 

November 2022 | 2 min read   

Money market funds – How your cash could work for you? 

Cash plays a fundamental role in modern societies. Consumers use it on a daily basis for their purchases; companies need cash for overheads, payments and to keep appropriate liquid reserves in case of sudden or unforeseen circumstances.

However, in our view, it would be unrealistic for companies to manage their payments entirely in cash. During periods of high inflation, they could face a loss in purchasing power on the money they keep in deposits. Additionally, they could be disadvantaged by missing yield that we believe could be generated if they invested the same amount of cash in a financial instrument.
  

To solve this issue, corporate treasurers wishing to make their cash “work for them” could, in our view, decide to invest in money market funds. These are mutual funds which invest exclusively in high-quality, short-term debt instruments, which may include certificates of deposit, commercial papers, US Treasury Bills and bonds .

Investing in money market funds may offer three potential benefits:

1. Easy access to liquidity

The instruments money market funds are targeting in their investments are  among the most liquid asset classes, widely traded in global markets and hence can be readily exchanged for cash, potentially allowing investors to recuperate their money without a substantial detriment to their capital.

2. Security
Money market funds have to comply with industry-standard regulations, and they can only invest in a select number of short-term and low-risk instruments, which may be less impacted by sudden fluctuations in the markets.

3. Performance
In periods of high inflation, the purchasing power of cash deposits tends to disappear quickly. As Central Banks tend to control inflation by hiking interest rates, money market funds may be positively impacted by the monetary tightening and could generate a positive performance.

At Amundi, we offer a range of solutions targeted at the different needs of investors.

Learn more

Important information

Unless otherwise stated, all information contained in this document is from Amundi Ireland Limited and is as of 30 November 2022. The views expressed in this page should not be relied upon as investment advice, a security or service recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results. Amundi Ireland Limited is authorized and regulated by the Central Bank of Ireland.

Date of first use: 30 November 2022

Doc ID: 2916659