Money Market Investment In Singapore

What Is Money Market Investment?

The money market fund is a unique type of fund that is able to generate profits in a volatile environment. Since it provides excellent security and assured profitability, money market funds are often a favourite choice for many investors. Examples of money market instruments are savings, government loans, policy-oriented financial loans, central bank notes, bond buy backs, and corporate bonds.

Benefits of Money Market Investment

Wondering what the advantages of money market investment are? Here are some benefits:

  • Security – As we have already mentioned, money market investment is a very secure type of investment. It is preferred by investors who are averse to risk, since they do not need to worry about losing their principal investment.

 

  • Liquidity – Another advantage of money market investment is the liquidity that it offers. With money market funds, you have the option of convenient withdrawal of money whenever you need, as a current deposit. This is an option that most other investments do not offer.

 

  • Assured Profitability – Those who invest in the money market are guaranteed profits. This is fuelled by that fact that they will not lose their principal investment. This serves to increase their potential profit margin.

Here is an illustration to demonstrate just how money market investment works. Let us take, for example, an investor who has bought 100,000 Singapore dollars of money funds. Now, we will assume that there is a 35 per cent monthly rate of return. This will give the said investor a profit of 116.70 Singapore dollars in just 10 days. Do you see why money market investment is so lucrative now?

Singapore’s Money Market

In Singapore, money market funds are normally used to invest in short-term fixed income instruments. These typically take about 3 to 6 months to fully mature, and may include corporate bonds, government bonds, commercial bills, and deposits with financial institutions.

Since the Singapore money market fund is not just for fixed deposit accounts and can be used for commercial bills, corporate bonds, and government bonds, investors stand to gain even higher interest earnings as than if they had simply put their money into a fixed deposit account, or worse, a savings account.

Now, what normally happens in Singapore money market trading is that the money is spread over many different institutions and money instruments. Here is an example to make this concept a little more understandable:

The Oversea-Chinese Banking Corporation, OCBC, is one of the major commercial banks in Singapore. There, they have the OCBC Savers Singapore Money Market Fund. What they usually do is invest over 80% of the funds they have in instruments that have maturities of up to one year. The remaining amount is invested in corporate bonds and bills that have maturities of less than two years.

With such a diverse basket of holdings, money market funds such as OCBC’s OCBC Saver Singapore Money market fund, are able to offer attractively high interest rates to potential investors. Even after subtracting annual management fees (which are typically around 0.5%) and trustee and administrative fees (about 0.05%), Singapore money market funds are usually able to offer higher returns than that of a regular savings account.

For instance, the OCBC Savers money market fund had an enticing return of 1.58% in the year 2000 and a whopping 2.59% in the year 2001. Compared to the 1.325% and 1.16% averages of bank interest rates in 2000 and 2001 respectively, this can obviously be far more attractive to an investor. After all, no one in their right mind would want to invest in something with lower returns.

More Benefits Of The Singapore Money Market Fund

  • No Initial Sales Charges – One additional benefit of the Singapore money market is that there are no initial sales charges. For instance, if you put $10,000 into your money market fund and sell the same fund on the very next day, you will get back the full $10,000 since there are no sales charges involved. This gives you a higher profit margin.

 

  • No Income Taxes On Interest Gains – Also, there are no income taxes on gains from the money market in Singapore. The same cannot be said for fixed deposits or savings accounts, though, because you are bound by the law to declare your interest earnings during tax filing season. Therefore, choosing to invest in the money market can save you a lot of time and hassle, not to mention money.

 

  • High Degree Of Liquidity – The Singapore money market also offers a high degree of liquidity. Let’s say you’ve got $20,000 in money market funds. If you meet with a financial crisis and need to withdraw your money for emergency usage, you will be able to do so rather quickly as Singapore’s money market funds are easily liquidated as compared to other types of bonds and investments.

 

  • No Foreign Exchange Risk – If you own a Singapore money market fund, you do not need to face any foreign exchange risk. This is because all the instruments that Singaporean money market funds invest in are denominated in Singapore dollars, in corporate bonds such as City Development or Sembawang Corporation, or even in government institutions such as Port of Singapore Authority (PSA).

 

  • Low Interest Rate Risk – Singapore’s money market funds tend to hold very short term deposits and bonds. This minimizes interest rate risk for investors. The money market fund in Singapore can be said to be rather conservative, using interest bearing instruments that do not fluctuate much, not even if markets crash.

 

Who Should Invest In The Money Market Fund?

If you find that you have a large amount of money in your savings accounts, why not invest in the money market since it can offer you returns that are much higher than what your savings accounts can offer you? Also, if you have a sum of money that you need to park somewhere temporarily, the money market fund is a fantastic solution for you.

Of course, we are not saying that you should invest all your money in the money market. It is still useful to retain some savings accounts for paying out cheques, bills, and for depositing your salary, since you can’t do these things with your money market fund.

 

 

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