Absa Money Market Fund closure exposes common investor misunderstandings

Of purpose and risk.
Thousands of AMMF clients will now be seeking alternative investments for their money, collectively totalling more than R75bn. Image: Supplied

How do I select a proper investment vehicle or product matched to an acceptable level of risk for an appropriate return on investment, tied to achieving a specific investment goal? These are the key questions that all investors grapple with, or at least should be before investing their money.

The fact that many people don’t was recently exposed when Absa announced it was shutting down its large and popular Absa Money Market Fund (AMMF) on July 6.

Read: Absa closes money market fund

Outlining its reason for the closure in a letter to its clients, Absa said a survey done by it revealed that most clients erroneously believed the AMMF to be a bank account with both capital and associated returns being guaranteed by the bank.

The AMMF is, in fact, a collective investment schemes product (also known as a unit trust) and therefore capital and returns are not guaranteed, which increases the risk – a rather serious misunderstanding.

Absa may perhaps have had a few other reasons too – as has been widely speculated in the market.

These could possibly include the current low interest rates with fees being proportionately higher than when interest rates are high; concern over credit risk; or perhaps Absa felt it was giving away business via various debt instruments used by the fund – including other banks – that could instead have been channelled to its own banking products.

But its stated reason is nonetheless a very valid one that raises serious concerns.

Misconceptions regarding funds

Unwittingly, these AMMF clients were exposed to risks that they were seemingly totally unaware of.

The AMMF itself stated in its fact sheet that the fund – like all money market funds – was an ideal vehicle for short-term investments, to achieve a competitive interest rate with provision for immediate liquidity as an “attractive alternative to savings and deposit accounts”. It was characterised as being “suitable for investors who seek capital preservation with minimal volatility” and advised a three-month term as most suitable and having the lowest risk.

But in fact, we often find that investors will use a money market fund incorrectly for long-term savings or even to draw a monthly income, along with other faulty assumptions about its best use.

While the overall risk here is that of being oblivious of the risks involved in being incorrectly invested for incompatible reasons, specific risks include inflation risk, concentration risk, credit risk or the risk of default, and the risk of running out of money.

The credit risk, or the risk that Absa specifically would default on its obligation to investors, is arguably very low, but it remains a risk, nonetheless.

And the other specific risks mentioned are often totally neglected or disregarded but should always be considered.

Now thousands of AMMF clients will be seeking alternative investments for their money, collectively totalling more than R75 billion.

Questions they will, or should, be asking include what alternative investment options are available? Do they understand why they are invested in the money market or what it can or cannot do for them? What risks do they need to be aware of? And how should they go about moving their money out of the AMMF in the 90-day period allowed by Absa into an alternative investment product or vehicle?

Specific risks

Some of these questions will be best answered by seeking the advice of a credible financial advisor who is qualified, holds professional indemnity insurance, is registered with the Financial Sector Conduct Authority and who is totally transparent about the fees you will be charged.

However, it’s worth taking a deeper look at each of the other risks mentioned.

Inflation risk

This risk materialises when inflation outstrips the investment and starts eroding the real value of your investment. To explain: if you invested R1 million into a fund that over time underperformed inflation, at some point in the future the capital will buy you less than what the initial R1 million could, even if, perhaps confusingly, the investment could in nominal terms now be more than the original R1 million invested.

Concentration risk

This risk results from investing too much into one asset class and not being sufficiently diversified. For instance, if all your capital is invested into a money market fund with fixed interest and this asset class underperforms over time or even fails, you will suffer a significant loss. Your risk is reduced, or spread, by diversifying into different asset classes that will react differently to political, economic and other events.

Risk of running out of money

Clients often draw a regular income from their money market fund investments, in itself not a bad thing providing you have enough capital invested into other growth assets that will enable your portfolio to grow. But if you are dependent on the capital in the money market fund for both growth and income, then the life of your capital can be drastically reduced.

Default risk

As Absa warns in its AMMF fact sheet, there is a risk that the issuers of fixed income investments used by the fund (such as bonds) may not be able to meet interest payments nor repay the money they have borrowed.

When considering alternatives

For those clients who have used their money market funds like bank accounts, the alternative may be to indeed switch to an ordinary bank account. However, this may involve costs at low interest. Similar returns are possible with a fixed term investment, but then you’d lose the liquidity of a money market fund.

If you decide to remain in a money market fund for quick access to savings, stability and reasonable returns, be aware of the short-term purpose and the risks involved.

Now may be an excellent time to review your entire portfolio, ensure you are well diversified with sufficient offshore exposure, while evaluating all the other relevant factors. It’s always best to engage with a qualified financial planner or wealth manager to assist you with these important decisions.

Marc du Plooy is MD of Wealth Associates South Africa.

Luister: Kokkie Kooyman, direkteur en fondsbestuurder by Denker Capital, praat oor Absa wat sy geldmarkfonds sluit


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An alternative now is a USDC account paying 7.6% interest. No real cost. No minimum amounts. No minimum time periods. No monthly fees.

The “traditional banks”???

No thanks.

It is also a wonderful diversifier.

But with these USDC accounts you take counter party risk in a crypto exchange – which is a huge risk and explains why the interest rate is so high when Dollar bank rates are under 1%. Hardly clever.

Not long and crypto exchanges will be regulated and the risk reduced a bit. Reward does not go without risk.

The banks tie you in knots. Minimum this Maximum that. Cost this cost that. So when there is no Reward its not worth the effort.

Seemingly many people were looking for somewhere to park cash and earn something.

People in general are also sick and tired of being ripped off. If you put all your money into crypto I agree its “Hardly clever” If you put all your money into an ABSA money market fund its no different.

Do a bit of homework and take a bit of risk and you will be well rewarded. IN DOLLARS!! While parking money!!

Which usdc one?
And when you use it as a bank account you’ll pay fees on spreads/commissions. How much would it cost to pay someone with it vs a low cost account from SA bank?

Have you asked yourself how a dollar backed crypto pays 7.6% using an underlying asset that generates no cashflow? Have a look at what money market rates in the US are relative to 7.6%

You are somewhat behind in Crypto.

Research DeFi and then confirm that you still agree that the underlying asset generates no cashflow.

Tantamount to saying the interest that banks pay is on currency that generates no cashflow for the banks.

Myricals and Mmmm:

You can not service a 7.6% return from an underlying asset that does not have a more than 7.6% return. Flip it anyway you want, that ship won’t sail far.

Your asset may generate 20% capital returns per month then -20% returns for another few months, but do NOT mentioned this in the same sentence as money market mutual fund 7.6% returns. You can maybe do 7.6% junk bond ETF if you accept eyes wide open risks.

Johan_Buys, again I say…research DeFi…

Firstly, USDC is a stablecoin & is USD backed, so will always be around 1:1 to the USD. So no volatility as you describe.

Secondly, USDC is being borrowed for a myriad of transactions; derivatives, smart contracts, flash loans and more.

As a liquidity provider, the platform (CEX, DEX or other) pays 7.6%; The borrowers pay anywhere between 10% and 50% depending on the use case.

Use Crypto as collateral to borrow USDC and purchase more Crypto with the borrowed funds. Then stake, pool & farm the Crypto to generate even higher returns! One can comfortably achieve over 100% p.a. CASHFLOW return; then add Capital Growth and over 1000% p.a. is a walk in the park.

The days of Crypto being a static investment like gold & silver are long gone.

Absa and other banks failed to mention that the money market account is an “investment scheme” to clients. They have over the years promoted the money market as an alternate savings/fixed deposit account.

The fund sheet was never made available to clients.

Wholesale mis-representation !

“…Absa said a survey done by it revealed that most clients erroneously believed the AMMF to be a bank account with both capital and associated returns being guaranteed by the bank”

I have tried to make sense of this make it simply doesn’t.

So, they never did any such survey for 24 years?
Why would a misunderstanding by clients leads to closing the fund?

Would they close all their funds if clients misunderstood them?

What are the legal biddings on ABSA as a result of this “misunderstanding”?

Why wouldn’t they provide clarification instead of closing?

Even more surprising, it appears a lot of people buy ABSA’s explanation for closing the fund.

To be honest, I think this has more to do with the tremendous losses that ABSA suffered over the last year than any of the reasons mentioned in the article. ABSA saw this huge pile of money that can prop them up and decided to put measures in place to get their hands on it. The reasons in the article would have been valid if ABSA did not intend to try and reinvest that money on their internal platform into similar asset classes / products, therefore these are fabricated reasons. This is a top sleight of hand.

A rather weak excuse. I seriously doubt they had investors best interests at heart when they closed the fund. Probably could not justify their fees with interest rates being so low.

To me the heading says it all. It is incumbent on the bank to explain to the investing client who the product works and that the client leaves their offices with a full understanding of the product and its objects and for whom it is acceptable as a vehicle of investment

And the other banks? this isn’t the only money market account being used as bank account…

I cannot understand the huge bhoo-haah the media created around ABSA’s MM Fund closure. This leaves confusion amongst ABSA MM Account clients, which does not affect them.

Surely, ABSA still have a Money Market ACCOUNT (which is a banking product, paying variable interest)…as opposed to the MM Fund (the one being closed) which invests in various debt securities.

The former is a bank product, and the latter is a mutual fund investment.

What ABSA is closing is one of their UNIT TRUST FUNDS, being their Money Market FUND. Surely “Fund” investors can move to ABSA Money Market ACCOUNT product, or stay within the same asset management house, and by accepting slightly higher risk by switching to ABSA Income Fund (or similar low-risk fund on offer).

The article below explains the differences between the “Fund” and the “Account”:


The money market fund closure by ABSA is one of the biggest faux pas in history. Even worse they abdicate on the client education they have identified. Whoever made this decision is incompetent beyond belief.

Absa is a tired shadow of its former self. Been run into the ground by professionals !!!

They really should have told us that they have put the ANC in charge of ABSA! Probably no more SOEs left to destroy.

This move has nothing to do with absa doing what’s best for clients. They want to bolster their balance sheet! Now you lose all your money if Absa defaults. Go figure 😉

Unbelievable excuse. There are 1000s of money market funds worldwide. Is Absa the first domino? I doubt it. An insult to their investors I say.

End of comments.



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