Page 124 - Profile's Unit Trusts & Collective Investments - March 2025

CHAPTER 7

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
in the future at 5% inflation the retail banks.
End of Value Money market funds are restricted to investing in
Year 5% interest-bearing investments with an average maturity of 90
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 the government, banks and other
Typical allocation of a money market fund institutions for short-term repayment (up to
three months). There is no limit on the
percentage of assets a fund can invest in

7 DAY DEPOSITS government or South African Reserve Bank
(SARB) debt instruments, but when it comes
30% CAPITAL PROJ. 1%
NCDs CALL ACCOUNTS to commercial paper, fund managers are
14% 10% obliged to spread the loans with different
institutions:
BANKERS ACCEPTANCES
45% No more than 30% with institutions with
assets of more than R20 billion
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:

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