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How do Money Funds Work?

How do money funds work? Monetary fund is an open-end fund that gathers idle funds in the society and is operated by fund managers and fund custodians to keep funds. It is specially invested in money market instruments with low risk. Different from other types of open-end funds, it has high security and high performance. Liquidity and stable expected annualized expected returns have the characteristics of “quasi-savings”.

The operating principle of monetary funds is to collect money from small and medium investors and invest them in large-denomination certificates of deposit in banks, bond markets and other markets where investors are inconvenient to invest or have high thresholds to obtain returns.

Monetary funds generally invest in short-term monetary instruments, including short-term government bonds, central bank bills, financial bonds, etc., and also deposit a large amount of money in banks in the form of interbank deposits.

In the early stage of the development of domestic money funds, bonds, bills, and repurchase resale assets were the main types of money fund investments. In recent years, with the growing scale of money funds, more and more assets of money funds are allocated in deposits. middle.

The expected annualized interest rate of short-term bills, deposits, etc. is based on the market. If the funds are relatively tight, the expected annualized interest rate will rise. For example, if an investor deposits 100,000 yuan, it is impossible to negotiate the deposit price with the bank; but if the fund holds 1 billion yuan, it is possible to obtain a higher expected annualized interest rate.

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