In South Africa’s current economic climate, with the SARB’s repo rate at 7.5% and inflation expectations moving toward a potential 3% target, finding the right balance between capital preservation and competitive returns has never been more important. Money market funds offer South African investors an attractive alternative to traditional bank deposits, providing superior returns while maintaining the liquidity and safety needed for short-term financial goals.

Disclaimer: I am not a financial advisor. This information is for educational purposes only and should not be considered as financial advice. Always do your own research and consider seeking advice from a qualified financial professional before making any investment decisions.

What Are Money Market Funds?

A money market fund is a collective investment scheme (unit trust) that pools investors’ money to purchase high-quality, short-term debt instruments and cash equivalents. Unlike traditional bank accounts that are covered by deposit insurance, money market funds are investment vehicles regulated by the Financial Sector Conduct Authority (FSCA) and managed by professional asset managers.

These funds invest primarily in high-quality, short-term money market instruments with a maturity of less than 13 months, an average duration of less than 90 days and a weighted average maturity less than 120 days. This structure ensures exceptional liquidity while providing returns that typically exceed those available from bank call accounts.

Understanding the South African Money Market Landscape

The South African money market operates within a well-established regulatory framework. The main money market interest rates and indices are SABOR, JIBAR and STeFI, with the Alexander Forbes Short-Term Fixed Interest (STeFI) Composite Index being the most popular benchmark for money market investment portfolios.

Key Market Rates:

• SARB Repo Rate: Currently 7.5%, serving as the benchmark for monetary policy
• SABOR: The South African Benchmark Overnight Rate, used as a reference for many retail bank products
• JIBAR: The Johannesburg Interbank Average Rate, reflecting funding costs of major banks
• STeFI Index: A composite index consisting of SABOR (15%) and 3, 6 and 12-month NCD rates (30%, 35% and 20% weight respectively)

Key Features of South African Money Market Funds

Capital Preservation Focus Money market funds prioritise capital preservation while seeking to generate competitive returns. Most funds aim to maintain a stable unit price, typically around R1.00 per unit, making them suitable for conservative investors seeking better returns than bank deposits.

Superior Liquidity There is no lock-up period clauses or penalty fees applied when withdrawing from a money market fund like there are for fixed deposit accounts. You can typically access your funds within one to two business days, making these funds ideal for emergency funds or short-term savings goals.

Professional Management Your investment is managed by experienced portfolio managers who actively monitor credit quality, interest rate movements, and regulatory requirements. Fund managers formulate interest rate outlooks based on inflation expectations and SARB policy responses.

Regulatory Compliance South African money market funds operate under strict regulatory guidelines, including Regulation 28 compliance for retirement funds, ensuring appropriate diversification and credit quality standards.

Types of Investments in South African Money Market Funds

Money market funds in South Africa typically invest in:

• Treasury Bills: Government-issued short-term securities with maturities up to one year
• Negotiable Certificates of Deposit (NCDs): Fixed-term deposits issued by banks
• Commercial Paper: Short-term debt instruments issued by corporates and banks
• Repurchase Agreements (Repos): Overnight loans to financial institutions
• Bank Acceptances: Trade finance instruments (though these are no longer actively issued)
• Call Deposits: Short-term deposits with financial institutions

Benefits of South African Money Market Funds

Competitive Returns Money market funds generally offer significantly higher yields than traditional bank savings accounts. Recent distributions show yields around 7-8%, substantially higher than most bank call deposit accounts.

Diversification Benefits Your risk is spread instead of placing all of your eggs in one basket. Fixed deposit accounts generally have their investment with a single bank, while a money market fund has the risk adequately diversified across multiple issuers.

Professional Credit Assessment Fund managers conduct thorough credit analysis and maintain conservative approaches to credit risk, investing only in high-quality instruments from reputable institutions.

Tax Efficiency Money market fund distributions may be more tax-efficient than bank interest, particularly when held in tax-free savings accounts (TFSA) or retirement annuity funds.

Potential Risks to Consider

While money market funds are among the safest investment options in South Africa, they do carry some risks:

Credit Risk If the underlying issuer goes bankrupt, the investor could bear some losses, as seen from the collapse of African Bank in 2015 and Land Bank in 2020. However, diversification across multiple issuers helps mitigate this risk.

Interest Rate Risk Whenever interest rates are lower than inflation, real returns might be negative. In reality, money market rates have tended to outperform inflation and deliver consistent positive real returns.

Liquidity Risk In an extreme situation where a money market fund receives a request for a large outflow, the fund may be forced to sell their most liquid, high-quality paper first. However, regulatory liquidity requirements help mitigate this risk.

Leading South African Money Market Funds

Here are some of the prominent money market funds available to South African investors:

Allan Gray Money Market Fund

• Fixed management fee of 0.25% excluding VAT
• Performance measured against the Alexander Forbes Short Term Fixed Interest (STeFI) 3-month Index
• Regulation 28 compliant
• Focus on capital preservation with competitive income generation

Old Mutual Money Market Fund

• Fund size: R26.7 billion
• Recent yield: approximately 7.28-7.77%
• Managed by Futuregrowth Asset Management
• Monthly distributions available

Ninety One Money Market Fund

• Professional portfolio management by experienced South African rates team
• Regulation 28 compliant for retirement fund investments
• Focus on short-term fixed income instruments

Satrix Money Market Fund

• Benchmarked against the STeFI (Short Term Fixed Interest) Index
• Designed to offer interest-like returns which vary with money market rates
• Low-cost passive management approach

Standard Bank MoneyMarket Select

• Premium investment account earning top interest rates on deposits above R100,000
• Immediate access to funds with zero administration fees
• Suitable for conservative investors seeking stability

Current Market Environment

The South African money market environment in 2025 presents unique opportunities. With the SARB’s repo rate having been reduced from 8.25% to 7.5% and expectations of further cuts as inflation moves toward the 3% target, money market funds are providing attractive real returns.

Recent fund yields have reached levels in excess of 5% greater than SA inflation, spreads that funds have not achieved since 2003. This environment has created compelling opportunities for investors seeking capital preservation with superior returns.

The Move Toward Lower Inflation Targeting

A significant development in the South African monetary policy landscape is the SARB and National Treasury’s alignment on moving toward a 3% inflation objective. This shift could have important implications for money market fund returns and the broader investment environment.

Technical work on lowering the inflation target is at an advanced stage, with the potential for substantially lower interest rates over time. However, this transition also presents opportunities to lock in attractive real returns in the current higher-rate environment.

Who Should Consider Money Market Funds?

Money market funds are particularly well-suited for South African investors who:

Need Emergency Fund Solutions Their combination of safety, liquidity, and competitive returns makes them ideal for emergency funds that need to remain accessible while earning meaningful returns.

Have Short-Term Savings Goals Whether saving for a property deposit, vehicle purchase, holiday, or wedding, money market funds provide better returns than bank accounts while maintaining accessibility.

Seek Portfolio Diversification As part of a broader investment strategy, money market funds can serve as the defensive cash component, providing stability and income.

Are Conservative Investors Money market funds are suitable for a low-risk appetite and a short-term investment horizon of up to one year.

Need Regulation 28 Compliance For retirement fund investments, many money market funds are Regulation 28 compliant, making them suitable for pension fund allocations.

Tax Considerations for South African Investors

Understanding the tax implications is crucial:

Interest Income: Distributions from money market funds are generally treated as interest income, subject to normal income tax rates.

Tax-Free Savings Accounts: Money market funds can be held within TFSA structures, providing tax-free growth up to the annual R36,000 contribution limit.

Retirement Fund Investments: When held within retirement annuity or pension funds, growth is tax-deferred until withdrawal.

Getting Started with Money Market Funds

Choose the Right Fund Consider factors such as:

• Management fees and total expense ratios
• Fund size and stability
• Track record and performance against benchmark
• Minimum investment requirements
• Distribution frequency

Understand Minimum Balances Some funds impose prescribed minimum balances (e.g., R10,000) with monthly charges for accounts below this threshold.

Consider Your Investment Horizon Money market funds are designed for short-term investment horizons, ideally up to one year.

Access Channels Money market funds can be accessed through:

• Unit trust management companies directly
• Financial advisers and brokers
• Investment platforms
• Bank investment divisions
• Retirement fund administrators

Comparing Money Market Funds to Alternatives

Vs. Bank Call Deposits

• Returns: Money market funds typically offer 1-2% higher yields
• Safety: Bank deposits have deposit insurance; money market funds rely on diversification and credit quality
• Access: Both offer good liquidity, but banks may provide ATM access

Vs. Fixed Deposits

• Flexibility: Money market funds offer immediate access without penalties
• Returns: Variable returns that adjust to market conditions vs. fixed rates
• Diversification: Money market funds spread risk across multiple institutions

Vs. Government Bonds

• Liquidity: Money market funds offer superior liquidity
• Interest Rate Risk: Lower duration risk in money market funds
• Credit Risk: Both have minimal credit risk, though government bonds have sovereign backing

Looking Ahead: Opportunities and Considerations

The South African money market environment continues to evolve. Key factors to watch include:

Monetary Policy Developments The potential adoption of a 3% inflation target could lead to a lower path for interest rates over time, affecting money market fund yields.

Economic Growth Prospects With the SARB revising its growth forecast for 2025 upward from 0.9% to 1.2%, economic conditions may influence monetary policy decisions.

Global Factors International developments, including US monetary policy and commodity prices, continue to impact South African interest rates and investment conditions.

Conclusion

Money market funds represent an essential tool in the South African investor’s toolkit, offering an optimal combination of safety, liquidity, and competitive returns. In the current environment of relatively high real interest rates and evolving monetary policy, these funds provide particularly compelling value for conservative investors.

Whether you’re building an emergency fund, saving for short-term goals, or seeking a defensive component for your investment portfolio, South African money market funds offer professionally managed, diversified exposure to high-quality short-term instruments. With yields significantly above inflation and bank deposit rates, they provide an effective way to preserve and grow capital while maintaining ready access to your funds.

As always, consider your individual financial circumstances, risk tolerance, and investment objectives when making investment decisions. The guidance of a qualified financial adviser can help ensure that money market funds align with your overall financial strategy and goals.