Money Market Funds (MMFs) are designed to provide capital preservation, liquidity, and a
competitive short-term return by pooling investors’ cash and investing mainly in short-dated,
high-quality instruments. In Uganda, MMFs typically earn yield from Treasury Bills (T-Bills), bank
placements (fixed/call deposits), and other permitted near-cash instruments, while maintaining
the ability to meet redemptions.
How yield is generated
- Interest from Government securities: T-Bills are often the core yield driver. They
commonly earn returns through a discount-to-maturity structure (buy below face value,
receive face value at maturity). Income is accrued over time and reflected in the fund’s
daily value. - Interest from bank placements: Funds also place cash with banks to manage day-to-
day liquidity and capture short-term deposit rates. Strong treasury management and
negotiated institutional rates can improve returns. - Reinvestment and compounding: MMFs operate like a maturity ladder. As instruments
mature, proceeds are reinvested at prevailing rates. This means yields adjust with a
lag—rising rates gradually lift portfolio yield as older instruments roll into higher-yielding
ones, while falling rates gradually compress yields. - Net yield after fees: Investor returns are what remains after fund expenses
(management fee, trustee/custody, audit/regulatory costs, transaction costs). A fund can
access good instruments but still deliver weaker net outcomes if fees are high or
trading/turnover is excessive.
How yield appears to investors
The Alpha Money Market Fund accrue income daily, so the unit price (NAV per unit) typically
rises steadily. Some funds distribute income periodically; others accumulate it in the NAV.
Investors should compare yields on a consistent basis and confirm whether quoted yields are
net of fees.
What can go wrong
Even “low risk” funds face identifiable risks:
Before investing, ask about portfolio mix, liquidity buffers and redemption terms,
issuer/counterparty limits (especially bank placements), fee structure and whether yield is net of
fees, valuation policy, investor concentration, and governance (trustee, custodian, audit,
conflicts management). A strong MMF focuses on reliable yield with controlled risk, not
headline performance at any cost.
DISCLAIMER: This article is for general information only and does not constitute investment
advice or a recommendation. Past performance is not a reliable indicator of future results.
Investments involve risk, including possible loss of capital—seek independent advice where
appropriate.