Investing in money market funds through fintech start-ups

This article first appeared in Wealth, The Edge Malaysia Weekly, on November 30, 2020 - December 06, 2020.

"Many individuals are holding a lot of cash and rely heavily on fixed deposits and their Employees Provident Fund savings. When interest rates are low, they don’t know where to invest their money. It is time for them to learn more about low-risk investment alternatives." - Wong (Photo by Patrick Goh/The Edge

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Investors can consider investing their short-term spare cash in a money market fund through mobile applications for better investment returns and other benefits, says Wong Wai Ken, country ­manager for StashAway Malaysia.

These mobile apps, powered by financial technology (fintech) start-ups, come with good user experience and a seamless onboarding process, he says. Instead of visiting an agent or a physical branch for registration, users can open a personal account online within minutes and invest their money in a money market fund.

Investors can also earn potentially higher returns than fixed deposits and enjoy the convenience of instantly cashing out the money invested in a money market fund for spending purposes.

Speaking on behalf of StashAway Malaysia — the first licensed robo-advisor in Malaysia — Wong says the start-up launched StashAway Simple in July in partnership with Eastspring Investments Bhd.

StashAway Simple is a cash management solution that puts investors’ money in Eastspring Investments Islamic Income Fund, with a projected net annual return of 2.4%. Such a return is higher than the average fixed deposit return of about 1.8%. It is also in line with the average return of existing money market funds.

According to The Edge Lipper Fund Tables, there were 95 money market funds in the market as at Oct 30. The average annual return of the 45 non-Islamic and 50 Islamic money market funds was 2.35% and 2.3% respectively.

Wong says the investment returns provided by StashAway Simple, which can be accessed through the StashAway mobile app, are competitive and superior to some existing money market funds as the start-up rewards users with the rebate it receives from Eastspring.

“We are provided with a rebate from Eastspring, which means a discount on the annual management fee. We fully transfer this rebate to investors. This is why our performance is better than some existing funds.”

The annual management fee of StashAway Simple is 0.16%, compared with the market rate of 0.25% to 0.35%, according to the start-up’s website. Also, it does not impose a sales charge on investors, like other existing money market funds.

Other benefits of investing in StashAway Simple (compared with fixed deposits) include the exemption of a minimum investment amount and lock-in period. The interest earned by investors is also accrued daily.

Another mobile app that investors can expect is Versa, another cash management solution expected to be launched by the end of the year. Versa Asia Sdn Bhd, the fintech start-up behind the app, has partnered Affin Hwang Asset Management to invest its users’ money in Affin Hwang Enhanced Deposit Fund.

Like StashAway Simple, investors can invest any amount in a money market fund through Versa and it does not have a lock-in period. The interest earned is also accrued daily.

The main difference between the two is that Versa plans to let investors withdraw their money instantly for spending purposes. However, that feature is expected to be rolled out in the middle of next year, according to Versa CEO Teoh Wei-Xiang.

Moving forward, will StashAway Simple allow investors to withdraw and spend their money instantly? “Our philosophy is that a person’s investment [account] should be separated from his spending [account]. And it is good to have a barrier between the two,” says Wong.

“It takes two days for StashAway users to withdraw their money. [While some may argue that an instant withdrawal is great,] we think it is good for investors’ self-control.”

He says investors should equip themselves with better investment knowledge when the country’s interest rate is at its lowest since 2004. Apart from money market funds, they should also look at other lower-risk investment instruments such as unit trust funds and exchange-traded funds (ETFs) that invest in bonds.

“Many individuals are holding a lot of cash and rely heavily on fixed deposits and their Employees Provident Fund savings. When interest rates are low, they don’t know where to invest their money. It is time for them to learn more about low-risk investment alternatives,” he says.