It is not uncommon, but a risk management strategy for investors (who worry that stocks are either too expensive or not performing well), to buy some downside protection with yield. On the alternative, sometimes, the fear of poor stock market performance forces conservative and risk-averse investors to sit on their cash rather than risk the possible loss in the market. But prudence requires striking a balance between sitting on “barren” cash and losing it all in the market. This is where money market funds come in and play that risk management role of not losing the yield that would have, otherwise, been lost if an investor sits on his or her cash instead of losing it all due to poor performance in the stock market.
Money Market Fund Yield Vs Inflation Rate
The role of money market funds in giving investors the best of both Worlds, is even more so when the yields on such funds out-pace the rate of inflation. The latest available data from the National Bureau of Statistics indicates that the rate of inflation moderated slightly in February to 11.31%. With that, inflation rate has fallen for the second consecutive month. This is good news given that inflation rate in Nigeria has historically averaged 12.46% since 1996 to 2019, although it reached an all time high of 47.56% in January 1996.
For investors, especially those investing in fixed income and money market funds, this news may be heart warming as the relationship between inflation and money market yield is an important decision variable. Analysts at Quantitative Financial Analytics went around to find out the current yield on money market funds in Nigeria with a view to comparing it with inflation.
According to the data gathered by Quantitative Financial Analytics, the average interest rate on money market funds is currently 13.06% per year. This means that with 11.31 percent annual inflation, N100,000 invested in a money market account at 13.06% percent would gain about N1,750 in purchasing power over the course of a year. That may not be too encouraging but it is better than losing out in purchasing power terms.
Shop Around for High Yield
Investors can do quite a bit better than 13.06% percent if they shop around for higher paying funds. To help in this shopping, here are the top 10 high yield money market mutual funds in Nigeria:
(1) United Capital Money Market Fund:
Yield: 14.6%
Expense Ratio:1.6%
Fund Manager: United Capital Asset Management Company.
(2) FBN Money Market Fund:
Yield: 14.37%
Expense Ratio:0.9%
Fund Manager: FBN Asset Management Company.
(3) ARM Money Market Fund:
Yield: 13.76%
Expense Ratio: Not Available
Fund Manager: ARM Asset Management Company.
(4) Stanbic IBTC Money Market Fund:
Yield: 13.34%
Expense Ratio: Not Available
Fund Manager: Stanbic IBTC Asset Management Company.
(5) AIICO Money Market Fund:
Yield: 13.28%
Expense Ratio: Not Available
Fund Manager: AIICO Asset Management Company.
(6) Cordros Money Market Fund:
Yield: 13.27%
Annual Management Fee: 1%
Fund Manager: Cordros Asset Management Company.
(7) Coronation Money Market Fund:
Yield: 13.27%
Expense Ratio: 0.29%
Fund Manager: Coronation Asset Management Company.
(8) Greenwich Plus Money Market Fund:
Yield: 13.25%
Expense Ratio: Not Available
Fund Manager: Greenwich Asset Management Limited.
(9) PACAM Money Market Fund:
Yield: 12.96%
Annual Management Fee: 1%
Fund Manager: PACAM Asset Management Limited.
(10) AXA Money Market Fund:
Yield: 12.96%
Annual Management Fee: 1.25%
Fund Manager: AXA Asset Management Limited.
Good job Team!
Please could you elucidate what’s meant by expense ratio?
Thank you in anticipation.
Hi Brain. I believe is the total percentage of fund assets used for administrative purposes. Perhaps an annual management fee.
Fund managers charge fees to manage your fund, that is called management fee, some of them charge for making profits, that is performance fee, in addition, they charge for third party services like audit, legal, admin, etc. The percentage of the total of these fees in relation to the asset value of the fund, is the expense ratio. I will be doing a basic article on this
Thank you for sharing your knowledge but would you please explain to me the meaning of:
1. Expense ratio and
2. Annual management fee
Thanks in anticipation.
Thanks for your comment, I will do an article on the basic expense ratio and management fee, watch out for it
Love the analysis. I’m informed. Thanks.
Hey, thanks for this article.
I’d really like to know if the yield is over 12 month period or 30 day period?
Yes, those are annualized returns (over 12 months) and not monthly
Yes, those are annualized returns (over 12 months) and not monthly
hi,
I wanted to make payment and subscribe for information about your capital market data but cannot seem to find it. Please guide? thanks!
Is it better to buy a mutual fund with a a 100 naira value or 1 naira value. Those the value affect your overall interest. Thanks
Can you shed more light on the monthly profit calculation of say a N100,000 money market fund investment please.
Thankx for the post pls which one do you recommend for newbies.
I’m glad you shared your idea with us. Thank you
Hi, thanks for the performance comparison. It’s not clear what period (year) these yields represent. Are these 2018 yields? Are you able to provide this detail please? Thank you.
The yields on the report were YTD yield as ta March 2019. I will do similar report soon
Good work, keep it up
Can you shed more light on the monthly profit calculation of say a N100,000 money market fund investment please.
This topic needs to refreshed or rejoinder provided considering the recent drop in T-Bill rates. The rates from these funds managers have dipped considerably. So Nairametrics Team, kindly advise us again on those investments that can beat inflation in Nigeria today.
Yes, please answer the question. We are waiting for it please.
Hi. It would really help to have an update on this! Kindly consider.
How do I start the investment with the money market fund?