Page 127 - Profile's Unit Trusts and Collective Investments 2021 issue 2

Understanding Asset Allocation

Chart 7.1 wholesale market, money market funds usually offer a yield (a
percentage return on investment) higher than that offered by
What R1 000 now will be worth
the retail banks.
in the future at 5% inflation
Money market funds are restricted to investing in
End of Value
interest-bearing investments with an average maturity of 90
Year 5%
1 952.38 days or less (and a legal maturity of 120 days or less).
Depending on the investment policies of a particular fund, the
2 907.03
portfolio manager may invest in either short-term debt
3 863.84
instruments of government, or short-term loans to companies
4 822.70
(known as “commercial paper”) and negotiable certificates of
5 783.53 deposit (NCDs).
6 746.22 After many years of resistance from the banking sector,
7 710.68 which had a monopoly on the investment of short-term funds,
money market unit trusts were introduced to South Africa in
10 613.91
1997. In most countries money market funds are used as a
15 481.02
“parking place” for funds waiting to be invested elsewhere, or
20 376.89
as a refuge against equity market weakness. In South Africa the
25 295.30 demand for money market investments is driven by a third
30 231.81 consideration: non-resident South Africans require a
high-interest investment paid as quickly as possible, and, to
reduce risk, spread across a range of financial institutions.
Other interest-bearing funds and bank deposits compete directly with money market funds for
short-term investments, paying interest monthly.
Money market funds typically lend money
Chart 7.2 to government, banks and other institutions
for short-term repayment (up to three
months). There is no limit on the percentage
Typical allocation of a money market fund
of assets a fund can invest in government or
SARB debt instruments, but when it comes to
7 DAY DEPOSITS commercial paper, fund managers are obliged
30% CAPITAL PROJ. 1% to spread the loans with different
NCDs CALL ACCOUNTS
14% 10% institutions:
No more than 30% with institutions with
BANKERS ACCEPTANCES assets of more than R20 billion
45%
No more than 20% with institutions with
assets between R2 billion and R20 billion
No more than 10% with public entities or
foreign listed entities
No more than 5% in other instruments

Structure of a Money Market Fund
In many ways the structure of money market funds is no different to other unit trust funds.
The key features are:
Money market funds are controlled by CISCA
They are subject to the same criteria relating to management company credentials and
capital, as well as other requirements
They are subject to the same requirements relating to deeds, the custody of assets, quarterly
reports, and an annual audit
They provide investors and the media with daily prices, regular periodic income
distribution, and both quarterly and annual reports
In addition, there are provisions of subordinate regulations relating specifically to money
market funds. Regulations stipulate:

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Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts