PETALING JAYA: The prevailing low interest rates have attracted more money market funds (MMFs) into the domestic market.
Based on the Lipper data, the total size of these funds currently stands at RM110bil. This represents less than 10% of the total deposits market.
The time is ripe according to analysts for such funds to gain prominence in the market as MMFs provide higher returns than deposit rates amid the Covid-19.
They expect the key benchmark interest rate – the overnight policy rate (OPR) which determines the cost of borrowings – to be cut by at least 25 basis points this year, hence a lower deposit rate. This augurs well for the pick up of these funds.
Among some of the players making headway in the MMF space are Versa, Stashaway and Touch ‘n Go. More are joining the bandwagon, one analyst noted.
Versa is the first recognised market operator (e-service platform) to obtain approval and licence from the Securities Commission.
MMFs are unit trust funds that invest only in highly liquid short-term money market instruments that are essentially deposits (loans) in the form of cash or cash equivalent, as well as short-term Malaysia Government Securities (MGS).
As such, it offers stable income returns at very low levels of risk as they are backed by financial institutions with deep pockets.
Commenting on the outlook of MMFs, Versa chief executive officer Teoh Wei-Xiang (pic above) told StarBiz that with the rise of technology-based players in the last two years, he expects digital-native applications to lead the way to penetrate and educate the retail market on MMF.
“In view of the low-interest-rate environment, this will give consumers a good opportunity to earn better returns via these funds compared to deposits whilst maintaining a low-risk profile.
“With prevailing low-interest rates since the pandemic outbreak, I think this is a good opportunity for us to introduce MMF as an alternative to fixed deposit as lock-in periods for the latter are definitely not consumer-friendly given the low-interest rates.
“Whereas in MMF, consumers now have a platform where they enjoy fixed deposit-like rates on their hard-earned cash, with no lock-in period, no additional fees and most importantly next business day withdrawals, ” he added.
Teoh said at this juncture, Bank Negara views the current monetary stance to be accommodative but is leaving the door open for further monetary easing.
He does not discount the possibility of a further rate cut as the recovery in the domestic economy would be highly dependent on the reopening of businesses and the pace of the vaccine rollout.
For MMF, the risk is controlled, he said, noting that Versa’s funds are 100% invested into fixed deposits, hence making it one of the lowest risk mutual funds available.
Teoh said: “MMF is a good tool specifically to earn yield on your idle cash, or as an alternative low-risk product to fixed deposits without lock-in periods. MMF are suitable for users who do not like volatility which is again ideal for cash management.
On the international scene, he said a number of technology players have been very successful in democratising MMFs to the masses. One instance is Ant Financial’s Yu’e Bao, which is currently one of the worlds largest money market funds.
With a goal to be the leading MMF product in the region, he said Versa would continuously value-add to users’ investment journey. Versa has hit RM1.7mil in transactions since going live on Jan 29.
The e-service platform was launched in partnership with Affin Hwang Asset Management, the third largest asset management company in Malaysia with RM73bil of total assets under management as at December 31,2020.
“We are seeing very encouraging patterns from our early adopters where our average deposit is around RM1,200. We hope that we will gain more users’ confidence and eventually emerge as the go-to platform for our customer’s cash management needs.
“Versa is focusing on educating consumers on the availability and the benefits of MMFs through a straight forward user interface, and most importantly, we are also providing more MMF-related innovations.
“Currently, we have signed a memorandum of understanding with one of the largest payment companies in the world with over 70 million global merchants. We are pending regulatory approval for this to be materialised, ” Teoh added.