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Tutorial: Money market funds

What are money market funds?

Money market funds form the basic category of shares funds which are primarily used for short-term valuation of money. They are an alternative to saving accounts or term deposits enabling the investor to share participate flexibly in the development of money and bond markets. Their investment goal is to exceed the interest of term deposits, as well as the yield of short-term interest rates at long horizons. The fluctuation of investment value in money market funds is usually low, but the high safety of investment is connected with a relatively lower long-term yield for the investor in comparison with other categories of open shares funds.
Money market funds are best for conservative investors expecting stable development of their investment with minimum fluctuations of its value. And also for investors having short investment horizons or not being sure when they may need invested money.

How do money market funds work?

Money market funds primarily invest in money market instruments, including treasury bills and highly safe short-term bonds.
The portfolio of the funds is widely diversified - consisting of numerous titles, which reduces market risks significantly.

Your advantages

  • High liquidity – fast payout of money without penalties
  • Short minimum investment horizon recommended
  • Very low fluctuation of value
  • Wide diversification of fund portfolios up to tens of titles, reducing the risk of drop in the investment value
  • Either lump sum or regular investments
  • High transparency

You should know

  • Thanks to its structure, money market funds can react to market development very flexibly
  • Guaranteed funds are collective investment funds
  • The value of investment in shares funds can go up or down, and return on the amount invested is not guaranteed
  • All details on shares funds and risks connected with investments in the funds, including information on the investment company managing the fund, are provided in the Fund Statute



Purchase conditions

Who can buy?

  • Citizens of the Czech Republic or foreign nationals over the age of 18 years (legal representative in the case of a minor)
  • Legal person, natural person–entrepreneur
  • Other entities established under the laws of the Czech Republic (foundations, movements, political parties)

What documents should be signed by the client

  • Investment adequacy questionnaire
  • Contract for the provision of purchase and sale of securities issued by the subjects of collective investment
  • Contract for the opening and management of investment instrument asset accounts

What is needed for signing the Brokerage Contract

  • Natural person
    Valid identity card (ID card or travel, diplomatic or service passport, residence permit)
  • Legal person
    Proof of legal personality – an extract from the Commercial Register (original or certified copy) not older than 3 months, and proof of entitlement to dispose of share certificates signed by representatives
    Document to verify identity (natural persons – e.g. company executive)
  • Other entities
    Proof of legal personality, which is issued by the appropriate authority that either approves or registers their activities. And here, there are no 3 months... isn't it possibly discrimination?

How do money market funds react to…

Fluctuations in value and thus yields of money market funds depend primarily on the development and amount of interest rates. The advantage of the funds is that they can react flexibly to any changes in the interest rates.
 
At the present time we have a low interest rate environment which is also determining for the yield potential of money market funds. If interest rates go up, which is expected in the medium-term horizon time, any increase of the rates will reflect in the funds very flexibly and their yields will also rise gradually.





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