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Money Market Fund Returns;- How to Calculate

Money Market Fund Returns

Money Market Fund (MMFs) are a great investment for small investors as well as large investors. They usually have low entry requirements, making them accessible to many people. When calculating your Money Market Fund returns, there are three things you should understand.

  • Shares: MMFs are usually big, diversified investments where investors are allowed to invest in relatively low amounts and get a slice of the pie. Your shares determine how much pie you can own. It is essential that you understand how many shares you own in the MMF before calculating your returns.
  • Net Asset Valuation (NAV): Since an MMF is invested in different assets that might be valued differently, every MMF calculates a NAV to make it simple and standardise all the investments. Usually, Kenyan MMFs strive to maintain an NAV of Sh1. Any gains made above Sh1 are distributed to shareholders.
  • Annual Percentage Rate (APR): The APR, also known as the Annual Percentage Yield (APY), is the rate at which the underlying assets of an MMF generate returns. This rate can change from time to time, depending on the performance of the underlying investments.

You can easily find this information through your fund provider, especially if you want to understand how many shares you have. Information on the NAV and the APR can be found on your fund provider’s website.

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In addition, most funds have their shares valued at Sh1, meaning that the number of shares you hold is equivalent to the amount you have invested. Ensure you double-check with your fund provider to ascertain if this is the case.

Therefore, when calculating your return from your MMF investment, you need to calculate the total value of your investment.

For instance, if you have invested Ksh50,000 in an MMF whose NAV is Ksh1 and the shares are also Ksh1, the total value of your investment will be Ksh50,000.

Total value = NAV x Number of Shares

Now that you know the total value of your investment, you can determine how much the investment is going to earn you. The rate of return is usually expressed annually; however, you can adapt it to any other time period you want to calculate for.

For instance, if a fund has an average rate of return of 10%, here is how you calculate your Money Market Fund returns.

Returns = Total value x APR

Returns = Ksh50,000 x 10%

Returns = Ksh5,000

Knowing the total value of your investment and the returns it has earned, the final value of your investment is:

Total value + Returns 

In our example, that will be

Kshh50,000 + Ksh5,000

Final value = Ksh55,000

Regularly check the performance of the underlying assets in your MMF investment, as the performance of your investment is tied to their performance. When the rate of yield fluctuates, adjust your calculations accordingly.

Money Market Fund Benefits

In addition to earning you returns, MMFs also have other advantages. Here are some of them:

Low Risk: MMFs usually invest in short-term, high-quality securities, which reduces their risk exposure as opposed to other investments such as stocks and long-term bonds.

In conclusion, investing in a money market fund is one of the best investment decision one can make since it helps you hedge your investments from losses caused by inflation and in times of uncertainty.

It is a vibrant opportunity to save especially for the younger generation since the money market funds offer higher returns than bank deposits. You can also access your funds anytime you may need it due to technological advancements. The minimum investment amount is also low, which is very affordable.

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Written by The County Info

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