Commercial banks are pursuing high net worth individuals and asset managers, according to fresh information that has surfaced months after politicians were accused of stockpiling US dollars before Nigeria’s primary elections and contributing to the naira’s depreciation. Funds that offer sweet interest rates to entice its naira deposits
According to experts, this is increasing activity in the money market fund industry and has given investors a fresh window of opportunity to participate in the funds, which can now deliver returns of at least 10% annually after costs.
Experts claim that these returns, which are far higher than those of Treasury notes, are the strongest money market fund yields in almost three years.
The Central Bank of Nigeria’s (CBN) policy rate dropped from 11.5% to 14.0% over the previous four months.
In a group email, experts at Coronation Research noted that money market funds can invest in bank deposits, which are now appealing due to rates offered by commercial banks that vary from 13.0% to 15% per year for a 90-day period. deposits.
“This probably comes as news to the majority of individual deposit account holders, whose personal accounts can earn much less than this: but these high rates are generally only available for large deposits of N1.0 billion ( those with $2.3 million) and above.
“So it makes sense for individual savers to pool their money in money market funds to profit,” the analysts advised.
Only slightly higher than the CBN’s benchmark rate, the interest rate on 90-day Treasury bills increased from 2.81% to 3.93%.
For further clarification, analysts pointed out that the majority of money market funds are expected to invest a minimum of 25.0% of their shares in government securities, such as treasury securities or bonds released by the CBN, rather than just investing in liquid funds.
Therefore, a money market fund today may invest in lucrative bank deposits (provided it has N1.0 billion or more in cash), but may also need to buy money market bills to offset that return. Treasury with a relatively low yield.
“This is where it gets interesting because money market funds can invest in the CBN Special Notes instead. mutual funds can combine bank deposit rates with special vouchers, as well as other instruments, to achieve much higher returns than before.” Today, the typical return of a money market fund can reach 10.0% per annum, net of fees, or slightly more,” according to Coronation Research analysis.
The firm clearly explained that banks’ higher deposit account rates are a side effect of the cash reserve requirement (CRR).
The fraction of customer deposits that banks must deposit with the CBN is known as the CRR.
Although it is stated to be 27.5%, it is commonly believed to be 50.0% or more in reality.
Because consumers typically don’t use up all of their savings, a low CRR has little impact on deposit rates.
“Thus, banks are not affected by maintaining a proportion of deposits with the central bank: but at a certain level of CRR, the demand for deposits affects liquidity, and banks must offer high rates to maintain their high deposit levels,” the firm noted. further away.
A message from one of the wealth managers to clients and seen by Nigerian Tribune reads in part: “The AXA Mansard Money Market Fund is a vast pool of funds from different like-minded investors like you which is invested on your behalf in different securities which include treasury bills, term deposits and commercial paper.
“To take advantage of these benefits, all you have to do is buy units of the Fund, create a profile and watch your investment grow. By using your own client dashboard, you can always buy more units of the Fund, make a withdrawal and generally monitor your investment.
Money market dynamics, however, are volatile and ever-changing. Therefore, even though banks may currently provide high deposit rates for substantial term deposits and offer high yields on special bonds, nothing remains constant for very long.
Analysts claim that money market fund returns just appear stronger currently than they have been in the past almost three years.
Since they invest in cash and government-backed securities including treasury bills, treasury bills and repurchase agreements, and commercial paper, money market funds have very minimal risk.
Large corporations issue commercial papers, which are money market securities, to raise money to cover short-term debt obligations like payroll. Commercial papers are only guaranteed by the issuing bank or company’s promise to pay the face amount on the due date, which is typically 270 days or less from the issue date.
