Maybe because it’s sort of on the conservative side and its returns are modest at best.
In this article, I’m going to talk about what they are and how you can earn from them. Read on and learn more about why they are considered less risky and provide passive income for short-term financial goals.
Before we talk about these investment funds, let’s talk about what money market is.
Money market is a place where banks and institutions can buy or sell short-term debt instruments, with maturity that lasts overnight to a year. It is a means for big companies and financial institutions like banks and investment corporations to borrow capital quickly.
In the Philippines, examples of debt instruments are:
- long term negotiable certificate of deposit or LTNCD
- time deposits
- bonds issued by the government retail treasury bonds and corporate bonds
- treasury bills
- commercial papers
- other debt securities that are approved by the Bangko Sentral ng Pilipinas (BSP)
Because they are debt instruments, they are interest-bearing. Acquiring them would you to earn interest, which is paid at a periodic interval. That’s why they’re also collectively considered as fixed income securities. Not only that, they can be traded and they usually mature within a year.
What is money market fund?
Debt instruments are bought and sold (traded) in wholesale. Money market funds are created to be sold in retail to the investing public. This means that instead of you having to personally buy and own these securities, you let the fund manager to do it on your behalf.
Here is an example portfolio of a money market fund portfolio.
As you can see, the portfolio has the following: bank time deposits, LTNCDs (long term negotiable certificate of deposit), government bonds, corporate issues, treasury bills, and cash.
List of Philippine companies offering money market funds
They are offered by the following companies:
- mutual fund companies
- unit investment trust funds
- Personal Equity and Retirement Account (PERA)
- variable universal life (VUL) plans
Why is money market fund considered less risky than others?
Again, it is crucial to always have a thought that risks cannot be eliminated entirely, but it is also valid to consider that not all risks are created equal.
Money market tends to be regarded as the least risky compared to bonds and stocks. This is because of the short maturity. Risk is reduced because there is a shorter length of time that these debts are expected to be paid.
Compare that to the very volatile nature of stocks where prices can go up and down real-time. Bonds may have comparatively less risks than stocks, but such risks may increase the longer the bonds mature.
Plus, these securities are issued either by the government or corporations rated according to their credit-worthiness.
Advantages of money market funds in the Philippines
Here are the pros and benefits of investing in money market funds.
They are managed in a way that allow you to get in and out. When you want to redeem your investment, companies offering UITF, mutual funds, PERA or VUL are regulated to buy back your holdings so that you can get your money back.
Park your money
Investors may also park their money during downtime in capital market. Because the risk of capital loss is minimal (although not entirely absent), they can wait out until the market picks up momentum again.
And for the time being that they are parked, they get to enjoy moderate gains in a low-risk investment.
Rate hike shield
They can also protect from rate hikes. You see, bonds behave opposite to the change in interest rates that are announced by the BSP. If the rate is increased, the return of bonds falls. If the rate is decreased, bonds rise in value.
Money market securities are usually unaffected to rate hikes.
Disadvantages of Philippine money market funds
Whenever you invest, your money is not insured unlike LTNCD, savings account or time deposit. While experts believe that capital loss is minimal, the global financial crisis in 2008 brought a new light into this belief as those debts backed by mortgages were impacted negatively.
The returns that you get are also non-guaranteed. Also, they fluctuate from time to time. The kind of income that you get then can vary and be unpredictable.
Because of the moderate returns, there might be an opportunity cost if you invest long term. Stocks for the past 10 years have posted double-digit growth. The same cannot be said for money market funds.
Another thing to consider is inflation. Inflation describes the rise of prices of goods and services. If your returns do not match or exceed inflation, then you may be losing the value of your money over time.
Perhaps the biggest drawback is that the fees might eat into whatever gains you get. Bear in mind that the returns are modest at best, and if you take the fees into account you might be at the losing end.
Features of a money market fund
Just like any other pooled, managed funds have the following features:
- Initial capital.
- Additional investment
- Sales load
- Management fee
- Holding period
- Exit fee
The initial capital is the minimum investment that is required when you open the fund. It ranges between P25 and P1 million. Check the table below for the details or you can contact the company directly to get more information.
The additional investment is the least amount required when you want to add more to your investment. It can be anywhere from P25 to at least P100,000 depending on the fund.
Sales load is a portion of your investment that goes to the fund. It’s a charge that is paid every time that you put money in. There are many reasons a fund may charge a sales load, one of which is as a compensation to the licensed agent who assisted you.
Management fee goes to pay the operation and management of the fund. It ranges between 0.05% to 1%.
The holding period is the least period of time you’re expected to keep your investment in the fund. Getting your money back earlier than that would cause you to be charged for the exit fee.
Exit fee is assessed when you redeem your investment before the holding period ends.
Fees and charges of money market funds
|ALFM Money Market Fund, Inc.||Mutual funds||5,000||1,000||5%||0.50%||7 days||1%|
|First Metro Save and Learn Money Market Fund, Inc.||Mutual funds||5,000||1,000||None||0.50%||7 days||1%|
|Philam Managed Income Fund, Inc.||Mutual funds||?||?||?||?||?||?|
|Sun Life Prosperity Dollar Starter Fund, Inc.||Mutual funds||$500||$100||None||0.25%||7 days||0.25%|
|Sun Life Prosperity Money Market Fund, Inc.||Mutual funds||100||100||None||0.25%||7 days||0.25%|
|BDO PERA SHORT TERM FUND||PERA||1,000||1,000||0.50%||30 calendar||0.50%|
|BPI PERA Money Market Fund||PERA||1,000||1,000||0.50%||None||None|
|Landbank PERA Money Market Fund||PERA||5,000||1,000||1%||30 calendar days||25% on net earnings or 500, whichever is higher|
|AB CAPITAL SHORT-TERM FUND||UITF||50,000||25,000||0.375% p.a.||0 calendar||NONE|
|Security Bank Peso Money Market Fund||UITF||10,000||1,000||0.30% per annum based on the Net Asset Value (NAV)||30 calendar||0.5% of amount redeemed|
|ATRAM Peso Money Market Fund||UITF||50||50||0.50% p.a.||0 banking||None|
|Bank of Commerce DIVERSITY MONEY MARKET FUND||UITF||10,000||5,000||0.25% p.a.||30 calendar||5% of the redeemed amount|
|BDO INSTITUTIONAL CASH RESERVE FUND||UITF||0||0||None||0 calendar||None|
|BDO PESO MONEY MARKET FUND||UITF||10,000||10,000||0.50% p.a.||0 calendar||None|
|BDO SHORT TERM FUND||UITF||10,000||10,000||0.50% p.a.||30 calendar||0.50% of the Original Participation Amount|
|BPI Short Term Fund||UITF||10,000||1,000||0.25% p.a.||0 calendar||None|
|BPI Money Market Fund||UITF||10,000||1,000||0.50% p.a.||0 calendar||None|
|CHINA BANK MONEY MARKET FUND||UITF||5,000||1,000||0.25% p.a.||0 calendar||None|
|CHINA BANK CASH FUND (formerly CBC INSTITUTIONAL MMF)||UITF||5,000||1,000||0.25% per annum based on the Net Asset Value (NAV) of the Fund before trust fee for the day||3 banking||1.0% of the amount redeemed|
|CHINA BANK SHORT-TERM FUND||UITF||5,000||1,000||0.15%p.a. based on the Net Asset Value (NAV) of the Fund before trust fee for the day||3 banking||1.0% of the amount redeemed|
|CTBC Money Market Fund||UITF||10,000||10,000||0.25% per annum based on the Net Asset Value (ANV) of the Fund before trust fee for the day||3 banking||1.0% of the amount redeemed|
|Development Bank of the Philippines UNLAD KAWANI MONEY MARKET FUND||UITF||25||25||0.25%||30 calendar||0.50%|
|Development Bank of the Philippines CLASS I – UNLAD PANIMULA MM FUND||UITF||1,000,000||100,000||0.05% p.a.||0 calendar||None|
|Development Bank of the Philippines CLASS II – UNLAD PANIMULA MM FUND||UITF||100,000||10,000||.15% p.a.||0 calendar||None|
|Development Bank of the Philippines CLASS III – UNLAD PANIMULA MM FUND||UITF||10,000||1,000||.25% p.a.||0 calendar||None|
|EastWest Peso Money Market Fund||UITF||10,000||1,000||.30% p.a.||0 calendar||None|
|East West Peso Short Term Fund||UITF||10,000||1,000||0.25% p.a. of the market value of the fund||0 calendar||None|
|LANDBANK Money Market Fund||UITF||5,000||1,000||0.25% p.a of the market value of the fund||0 calendar||Not applicable|
|LANDBANK Money Market Plus Fund||UITF||5,000||1,000||0.20%||7 calendar||25% of net earnings (P500 minimum)|
|Maybank Tiger Peso Money Market Feeder Fund||UITF||10,000||1,000||0.50%||30 calendar||25% of net earnings (P500 minimum)|
|Metro Money Market Fund||UITF||50,000||25,000||0.25% p.a.||7 banking||0.25% of redemption proceeds|
|Metro Short Term Fund||UITF||25,000||10,000||0.60% p.a. based on Net Asset Value (NAV)||7 calendar||50% of income on redeemed amount|
|PBCOM Money Market Fund||UITF||10,000||10,000||0.60% p.a. based on Net Asset Value (NAV)||7 calendar||50% of income on redeemed amount|
|PNB PRIME PESO MONEY MARKET FUND||UITF||10,000||10,000||0.5% p.a.||30 calendar||0.125% of redemption value|
|PNB GLOBAL FILIPINO PESO MONEY MARKET FUND||UITF||5,000||5,000||0.50% p.a.||5 banking||50% of Income Earned|
|PNB DREAM BUILDER MONEY MARKET FUND||UITF||2,000||2,000||0.50% p.a.||5 banking||50% of Income Earned|
|PNB INSTITUTIONAL MONEY MARKET FUND||UITF||10,000||1,000,000||0.5% p.a. of fund value||30 calendar||50% of Income Earned|
|PNB PESO FIXED INCOME FUND||UITF||10,000||10,000||0.125% p.a. of Fund Value||3 banking||50% of Income Earned|
|PSBANK MONEY MARKET FUND||UITF||10,000||5,000||0.5% p.a. of fund value||5 banking||50% of income earned|
|RIZAL PESO MONEY MARKET||UITF||5,000||1,000||0.50% p.a. based on Net Asset Value (NAV)||30 calendar||1.00% for 1-15 days and 0.50% for 16-30 days of Redemption proceeds for all subscriptions held for less than thirty (30) days|
|RCBC PESO SHORT TERM FUND||UITF||5,000||1,000||0.50% based on NAV||0 calendar||None|
|RIZAL PESO CASH MANAGEMENT FUND||UITF||1,000,000||100,000||0.25% per annum||0 calendar||None|
|Robinson Bank Peso Money Market Fund||UITF||100,000||10,000||0.25% based on NAV||0 calendar||None|
|SB PESO MONEY MARKET FUND||UITF||10,000||5,000||0.25% per annum||14 calendar||1-3 days 100% of interest earned ; 4 < 14 days 50% of interest earned|
|Sterling Money Market Fund||UITF||10,000||5,000||0.35% p.a.||0 calendar||N/A|
|UnionBank Peso Short Term Fixed Income Portfolio||UITF||0||0||1.00% p.a.||30 calendar||0.50% of the net proceeds|
|UCPB Cash Management Fund (Formerly United Cash Management Fund)||UITF||1,000||1,000||1% per annum; 0.34% for the quarter||90 calendar||Not applicable; Service Fee of Php100 per withdrawal|
Best money market funds in the Philippines
See below the list of top money market fund performance for the year 2019. For more complete list, visit best UITF and top mutual funds articles. As a reminder, past results do not guarantee future returns.
Thus, the best money market fund is UnionBank Long Term Fixed Income Portfolio. It is followed by UnionBank Tax Exempt Portfolio, Security Bank PESO BOND FUND, ABF Philippines Bond Index Fund and BPI Fixed Income Portfolio Fund-of-Funds.
How to interpret the data?
Imagine that you put in ₱100,000 at the start of the year. By the end of the year, if you invested in UnionBank Long Term Fixed Income Portfolio, your money would now be worth ₱122,120 because that fund grew by 22.12%.
|UITF||Union Bank||UnionBank Long Term Fixed Income Portfolio||22.12%|
|UITF||Union Bank||UnionBank Tax Exempt Portfolio||19.82%|
|UITF||Security Bank||SB PESO BOND FUND||19.29%|
|UITF||BPI||ABF Philippines Bond Index Fund||18.67%|
|UITF||BPI||BPI Fixed Income Portfolio Fund-of-Funds||17.61%|
|UITF||China Bank||CHINA BANK FIXED INCOME FUND (formerly CBC GS FUND)||17.13%|
|UITF||BPI||Odyssey Peso Bond Fund||16.96%|
|UITF||EastWest||EastWest Peso Long Term Bond Fund||15.66%|
|UITF||Manulife||Manulife Income Builder Fund (Class I)||15.51%|
|UITF||Union Bank||UnionBank Philippine Peso Fixed Income Portfolio||15.16%|
|UITF||Manulife||Manulife Income Builder Fund (Class A)||13.81%|
|UITF||RCBC||RIZAL PESO BOND FUND||13.08%|
|UITF||Union Bank||UnionBank High Net Worth Intermediate-Term Peso Fixed Income Portfolio||12.90%|
|UITF||BDO||BDO MERIT FUND MEDIUM TERM PORTFOLIO||12.90%|
|UITF||Atram||ATRAM Total Return Peso Bond Fund||12.54%|
|UITF||Asia United Bank||Peso Investment Trust Fund||11.86%|
|Mutual fund||Philam||Philam Bond Fund, Inc.||11.54%|
|UITF||UCPB||UCPB Peso Bond Fund (Formerly United Conservative Fund)||11.46%|
|UITF||BDO||BDO PESO BOND FUND||11.35%|
|UITF||BDO||BDO PERA BOND INDEX FUND||11.35%|
|UITF||BDO||BDO GS FUND||11.35%|
|UITF||BDO||BDO MERIT FUND INTERMEDIATE TERM PORTFOLIO||11.35%|
|UITF||BPI||Odyssey Peso Medium Term Bond Fund||11.35%|
|UITF||BPI||BPI Premium Bond Fund||11.35%|
|UITF||China Bank||CHINA BANK INTERMEDIATE FIXED-INCOME FUND||11.35%|
|UITF||EastWest||EastWest Peso Intermediate Term Bond Fund||11.35%|
|UITF||Land Bank||LANDBANK Bond Fund||11.35%|
|UITF||Manulife||Manulife Stable Income Fund (Class I)||11.35%|
|UITF||Manulife||Manulife Stable Income Fund (Class A)||11.35%|
|UITF||Manulife||Manulife Asia Dynamic Bond Feeder Fund (PHP Unhedged Class A)||11.35%|
|UITF||Maybank||Maybank Tiger Peso Bond Feeder Fund||11.35%|
|UITF||Metrobank||Metro Corporate Bond Fund||11.35%|
|UITF||Metrobank||Metro Max-5 Bond Fund||11.35%|
|UITF||Metrobank||Metro Aspire Bond Feeder Fund||11.35%|
|UITF||Metrobank||Metro Max-3 Bond Fund||11.35%|
|UITF||Metrobank||Metro Unit Paying Fund||11.35%|
|UITF||Philippine Business Bank||Diamond Fund||11.35%|
|UITF||PNB||PNB PESO INTERMEDIATE TERM BOND FUND (formerly AUP GS FUND)||11.35%|
|UITF||Union Bank||UnionBank Intermediate Term Fixed Income Portfolio||11.35%|
|UITF||Union Bank||UnionBank Infinity Prime Portfolio||11.35%|
|Mutual fund||Sun Life||Sun Life of Canada Prosperity Bond Fund, Inc.||11.20%|
|Mutual fund||Sun Life||Sun Life Prosperity GS Fund, Inc.||10.47%|
|Mutual fund||Soldivo||Soldivo Bond Fund, Inc.||8.03%|
|Mutual fund||Philequity||Philequity Peso Bond Fund, Inc.||7.71%|
|Mutual fund||FAMI||First Metro Save and Learn Fixed Income Fund,Inc.||6.79%|
|Mutual fund||Cocolife||Cocolife Fixed Income Fund, Inc.||4.83%|
|Mutual fund||ALFM||Ekklesia Mutual Fund Inc.||4.44%|
|Mutual fund||ALFM||ALFM Peso Bond Fund, Inc.||4.20%|
|Mutual fund||Grepalife||Grepalife Fixed Income Fund Corp.||2.72%|
|Mutual fund||ATRAM||ATRAM Corporate Bond Fund, Inc.||2.30%|
How much can you earn from a money market fund?
See below projections for annual returns ranging from 1% to 5% for an annual investment of ₱10,000. Fees are not included in the computation.
Is money market fund right for you?
Money market funds commonly are a fit for people if you are saving up for short-term goals. That would cover anything from goals that range in a matter of months or one year.
Also, it can be a suitable should you want to avoid investments with too much risks. They can be attractive to investors who would want to minimize capital loss in a bearish market.
Additionally, they may be an option too for emergency funds. Just look out for any holding period and any associated fees.
Aside from savings accounts, it can be utilized by retirees who would want to let their retirement savings to grow with modest gains while still enjoying the ability to be able to get their money any time especially in funds without any holding period or exit fee.
How can you subscribe to a money market fund?
So how can you start investing in money market fund?
As stated earlier, you have four options to choose from: mutual funds, UITF, PERA or variable universal life insurance (VUL). You can check this article on the differences among managed funds.
- Check your current financial status. Define your goals, what exactly are you saving up for?
- Come up with a financial plan in order to meet your goals. Research the specific money market funds that can help you achieve them. Choose the one that has the least sales load, little to no exit fee, shortest to no holding period, and the least management fee.
- Choose any of mutual fund companies, UITF companies, banks that offer PERA, and insurance companies that offer VUL. This is where you choose an institution that make account management easy for you because they’re conveniently located, have proven track record of stability, good customer service, etc.
- Set up an appointment with qualified sales representative. A mutual fund rep must be licensed by Securities and Exchange Commission, a UITF and PERA rep is registered trust fund agent, and the person who can sell VULs must be a licensed insurance financial advisor.
- You must be at least 18 years old. If you’re signing up for your child who is a minor, you may ask about in-trust for (ITF) documents.
- Make sure that you prepare at least one valid identification card.
- Prepare the minimum starting capital.
- You’d be asked to complete a few documents about your income, source of income (employment, business, etc), and other information. Be honest. The rep can help give you pointers on risks, forecast of the funds, historical performance, etc.
- If you think you’re good to go, sign up and make your deposit. Wait for confirmation on account creation, subscription, and other details.
- Keep tabs on the updates of the fund: current net asset value, any changes of the prospectus, etc.