Money market fund

What is a money market trust fund?

A money market trust fund is an open-ended[1] mutual fundwhich manages a portfolio that invests in short-term debt and other securities, which provide a combination of high safety and relatively high returns. The fund manages its investment portfolio with the goal of maintaining a highly stable asset value through liquid investments, while paying income to investors in the form of dividends.

The fund is regulated under a special law[2] that requires the fund to invest a significant portion of the money invested in it in MAKAM (a treasury bill which is a type of government bond issued by the Bank of Israel to the public on behalf of the government). The fund is also allowed to invest in large bank deposits (which usually enjoy a relatively high interest rate) as well as in bonds with a high credit rating.

The money market mutual fund benefits from an exemption from the payment of securities account management fees as well as buying and selling commissions, with the aim of maximizing fund's return for its savers. The fund charges relatively low management fees for its operation, compared to regular mutual funds.

[1] An open-end fund is a diversified portfolio of pooled investor money that can issue an unlimited number of shares. The fund sponsor sells shares directly to investors and redeems them as well. These shares are priced daily based on their current net asset value (NAV).

[2] Joint investment regulations in trust (annual report of a fund), 5776 - 2016.

What are the advantages of the money market trust fund?

 

• The money is held in safe (solid) low-risk assets.

• The money can be withdrawn every business day.

• The interest received is relatively high.

• The fees are relatively low.

• Even an investment of a small amount of 100 (one hundred) shekels is accepted. There is no minimum or maximum limit on the amount that can be invested in the money market trust fund.

• The tax is calculated only on the real profit, minus the increase in the consumer price index.

So how do you invest in the money market trust fund?

You open a securities account at a bank or an investment house that is a member of the stock exchange[1], you deposit the amount you wish to invest in the money market trust fund and you give the bank a buy order for the fund. Later, according to your needs, you give the bank a sell order to get your money together with the yield that was accrued during the investment period.

 

[1] A body that buys and sells securities traded on the stock exchange.

What else should you know about investing in the money market trust fund?

The profits generated from your money in the money market trust fund are obviously taxable, but the tax is calculated only on the real profit, that is, only on the profit which exceeds the increase in the consumer price index.
For example, I invested in the money market trust fund on January 1 and sold it on December 31 of the same year at a nominal profit of 5% of my investment. If the consumer price index increased during that period by 4%, the tax will be paid on a profit of only 1% (5%-4%), which is the real profit.