Another look at money market unit trusts
What is the money market unit trust?
Good day to you. I was just reading your column dated December 15, 2013, 'Investing on a meagre salary'. It interests me especially to know that I can invest on such a meagre salary. The questions I have for you are: What is the money market unit trust? Where is it located? Give me a scenario of how it works.
Your advice will be greatly appreciated. Please reply soon as I need to start my life going somewhere. I am 22 years old.
I note that young people are taking an interest in making investments. This is encouraging and positive. An early start makes it easier to accumulate resources for the long term and raises the prospects of a secure future.
A unit trust is an investment trust that pools the funds it derives from selling units to the public and invests them in various securities for the benefit of the unit holders. A unit trust is managed by a management company which is responsible for the day-to-day administration of its affairs, including the buying and selling of units, accounting, marketing and staff welfare. It is governed according to the terms of the trust deed - a legal document. Each unit trust also has a board of trustees which is independent of the managers and acts as custodians of the investments, cash and income of the fund.
The unit trust creates investment funds, or portfolios, to facilitate effective management of the investments. The name of each fund generally reflects its investment objectives or the types of securities in which it invests but there are exceptions: a capital growth fund invests to achieve growth through appreciation in the value of its assets but a money market fund, on the other hand, invests in money market instruments.
The money market facilitates trading in short-term securities. These tend to be interest-bearing and may be issued by governments or corporations. They tend to be low risk. Their unit values increase because the interest they earn is re-invested and not generally distributed to the investors. A money market unit trust, then, is a unit trust that invests in short-term securities.
The five unit trusts in Jamaica have money market funds. Barita Unit Trust has the Barita Money Market Fund, Scotia Investments has Scotia Premium Money Market Fund, Sagicor Sigma Funds has the Sagicor Sigma Money Market Fund, and NCB Cap Funds has the M Fund. Although I am including the JMMB Fund Managers Gilt Edge Fund in this group, I should let you know that it invests in long-term securities in addition to the short-term securities. The contact information of the unit trusts is available in the telephone directory and on their websites.
Although I have been recommending unit trusts, particularly for small and inexperienced investors, I recognize that their accessibility is limited in terms of their location as well as in terms of the initial amount that can be purchased.
The Barita Money Market Fund sells a minimum of 100 units. At the time of writing, the unit price was $11.66. The JMMB Gilt Edge Fund sells a minimum of 500 units, the selling price being $15.86 at the time of writing; the Sagicor Sigma Money Market Fund requires a minimum investment of $500, the selling price being $1.06 at the time of writing, and the Scotia Premium Money Market Fund requires a minimum investment of $500,000 with no restrictions on subsequent investments. The NCB Cap Funds - M Fund - requires a minimum initial investment of $200,000 and $10,000 for subsequent investments. Some of these funds would not suit you as a very small investor.
The unit prices are generally calculated on a daily basis; the income earned on the securities is added to their market value and all charges specified in the trust deed are deducted. The result, the net asset value, is divided by the number of units to determine the price. The Jamaican money market funds tend to buy and sell units at the same price.
Some unit trusts require that investors hold units for a minimum period. Barita's is 90 days. If units are redeemed early, the funds invested are returned to the investor without the deduction of any charges. For JMMB, the investor incurs a fee equivalent to four per cent of the value of the units being redeemed if they are held for less than 30 days. Sagicor charges the same early redemption fee but its minimum holding period is 90 days. NCB Capital Market's minimum period is 30 days and the early redemption fee is two per cent, but Scotia has no 'lock-in' period and hence no early redemption fee.
JMMB Fund Managers accepts payment by cheque but also facilitates programmed purchases by salary deduction and standing order. Barita and Sagicor accept the same forms of payment but also accept cash. Scotia accepts cheques and standing orders and NCB Capital Market accepts cheques.
You have several options. Weigh them carefully and decide. If you need to, call the respective unit trusts and get more information. I wish you well.
Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of 'The Handbook of Personal Financial Planning', offers free personal financial planning advice and counsel. Email firstname.lastname@example.org