Money Market Fund >>> 18 Reasons to Purchase a Money Market Fund ,in Israel

Since the beginning of 2013, the total assets managed by Money Market Mutual Funds have increased by a staggering 26 billion ILS. We asked ourselves as to the reason this specific mutual funds sector has increased so rapidly. Here is our answer, or as we call it – the 18 reasons to purchase a Money Market Fund.

1. No Management Fee. Management fee is a commission charged by Israeli banks (also referred to as safe keep fee). Following recent regulations by the Bank of Israel, local banks cannot charge management fee with respect to money market funds.

2. Investor is Exempt from Brokerage Commission. Brokerage commission is charged for the purchase/sell of securities through an exchange. It is charged by the bank (or exchange member) through which the purchase/sell was performed. Purchase of a mutual fund, usually do not charge with brokerage commission.

3. Fund manager is exempt of brokerage commission. The fund manager pays almost zero brokerage commissions, less expenses means greater yield for the fund.

4. Near Zero Management Fee. Money Market Funds charge an average of 0.13% management fee Furthermore, some fund managers offer from time to time 0% management fees.

5. Yield Close to Central Bank fund's Rate. Money market fund yield exceeds any 90 days bank deposit.

6. Short Duration. Average duration of assets held by a money market fund usually does not exceed 90 days.
7. Low Risk. Money Market funds invest in certain bank deposits, state and high rate corporate bonds. The risk of these assets may even be lower than of bank deposits.

8. No Minimum Investment Requirements. An investment in money market fund does not require any minimum amount.
9. Use of Repeated Standing Order. Since the purchase of a mutual fund does not require a limit order, an investor can use a repeated standing order to purchase money market fund, within a set amount of money.

10. Tax Payment. Tax payments apply only to yield percentage above inflation rate. This means that investor's yield is tax exempt up to the inflation rate. Bank deposits pay 15% tax on nominal yield.

11. Liquidity. Any fund, money market funds including, can be bought and sold upon any trading day. Bank deposits have no such liquidity advantage.
12. Deferred Tax. So long as the investor holds the fund, there is no tax charge. Tax is differed until fund is sold, hence a creating a deferred tax advantage.

13. Deductible Tax Payments. Whenever a money market fund's yield exceeds the inflation rate, a positive tax payment is charged. These payments can be deducted against losses from other capital market investments.

14. Transparency. Fund managers publicize the exact combination of the fund and many other data with respect (all of which is published at Funder website).
15. Comparison. The yield of different funds can be compared within relevant timeframes (daily, monthly etc.). Comparison between different funds can be performed upon many other aspects (risk measures, fees etc.) all of which can be found at funder website.

 16. Supervision. A trustee supervises the fund managers' as to any obligations required either by law, regulation or fund prospectus.

17. Experience. Money Market Funds established since 2008. Since then, these funds outperformed bank deposits each year.

18. Size Benefits. Money Market funds manage an aggregate amount of about 62 billion ILS. This amount can be used as leverage for higher rates in bank deposits, hence create an advantage to the investor.
Writers are economists and mutual funds experts. However an investor should consult any tax consequences as to capital market investments. The above article is addressed to an average individual investor. An investor should seek individual consultation as to his or her capital market personal investments.


By: Udi Aloni and Moshe Maimon