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.
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.
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.
Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 30 November 2022. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security 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. All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.
Date of first use: 30 November 2022
Doc ID: 2606590
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