Money Market Funds Review: Delivering unmatched value

May 23, 2020 (MLN): Investors have stashed their savings to domestic money market mutual funds in the month of April 2020 during pandemic and volatility in Pakistan Stock Market.

Money Market Mutual funds remained on top of the industry’s mutual funds’ assets under management (AUM) category in April as it captured the highest market share of 33% in asset allocation. Investors parked Rs 230 billion in low-risk investments, up by 7.5% MoM when compared to Rs 214 billion in March’20, bringing the industry’s total AUM to Rs 762 billion.

As March was turning point for money markets, April was equally decisive. The State Bank of Pakistan surprisingly further cut the Policy Rate by 200 bps to 9%, keeping in view the significant drop in crude oil prices, improvement in the inflation outlook, and the slowdown in overall demand amid Coronavirus spread.

Besides this, govt reduced profit rates on National Saving Schemes. Moreover, in April’20, total outflows of $700 million from hot money were recorded in April’20 owing to earlier than expected rate cuts.

During April’20, participation in T-bills was high. On the PIBs front, banks and corporates were keen to increase the maturity of their portfolios amid monetary easing, resulting into greater participation in long tenure.

Further, SBP conducted 10 open market operations (OMO) with net injections of Rs1.127 bn at 9.01%.

In April’20, money market mutual funds remained the best option for investors, hedging against shudders of capital market volatility. Due to the short-term investment horizon with the goal of earning interest and a high scale of liquidity, all 21 funds of the money market generated highly positive returns during April' 20.

To compare the performance of funds, they are assessed against an average benchmark rate; 70% 3-month PKRV and 30% 3-month average deposit rates of 3 ‘AA’ rated schedule banks as selected by MUFAP which has been come out at 10.01% for April’20. The three ‘AA’ rated scheduled banks selected by the Mutual Funds Association of Pakistan (MUFAP) are Samba Bank, Faysal Bank and Bank of Punjab.

As per the records maintained by Mettis Global Private Limited,19 money market mutual funds out of 21 successfully surpassed the benchmark rate i.e. 10.01% while only one fund missed it out by a small margin. 

Of these 19 funds, the top 3 best performing funds were UBL Cash Fund, UBL Liquidity Plus Fund- C and JS Cash Fund.

UBL Cash Fund emerged as the top victor amongst all other money market funds with an exception annual return of 19.07% during April’20, followed by UBL Liquidity Plus Fund and JS Cash with a return of 17.80% and 16.86% respectively.

Shariah Compliant Money Market Funds

The competitive riba-free returns followed by highly liquid investment in short-term Shariah Compliant securities make Shariah Compliant Money Market Funds a secured and safe choice for investors as these funds showed the highest growth of 25.4%, MoM, among other mutual funds AUM, pouring Rs 69 billion.

All eight funds surpassed the benchmark by a significant margin set by the Mutual Funds Association Pakistan (MUFAP) which has come out at 5.46% as per deposit rates of banks; Dubai Islamic Bank, Faysal Bank and Bank of Punjab.  

A performance chart put together by Mettis Global shows that all the eight Shariah Compliant Money Market Funds recorded their annual return within a range of 8.58%-10.34%.

Faysal Halal Amdani Fund stood on top of the pyramid amongst all other shariah-compliant money market funds with an annual return of 10.34% during April’20, followed by the NBP Islamic Money Market Fund and NBP Islamic Daily Dividend Fund with a return of 10.20% and 9.50% respectively.

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