Money market funds gaining traction in Singapore, with returns from 2.5%

They invest in low-risk instruments with short maturities of less than a year

- Angela Tan

Investors often forget that apart from stocks and bonds, there is a third key building block to a diversified investment portfolio—cash. Holding too much or too little of any of them will affect your investment goals.

Everyone holds cash for various reasons, including emergencies or for the right opportunity to deploy it. Unfortunately for the majority, cash is left accumulating in their banks because they do not know what to do with it or fear losing the hard-earned money.

But leaving your cash in the bank and earning a meagre 0.1 per cent interest from ordinary savings accounts does not make financial sense as its value is being eroded, with inflation for 2025 forecast at 1.5 per cent to 2.5 per cent.

Fortunately, fund managers in Singapore are seeing an increased appetite for money market funds (MMFs) in addition to Singapore Government Treasury bills, fixed deposits and Singapore Savings Bonds from those looking to preserve capital while generating modest returns.

An MMF is a type of unit trust that invests in low-risk instruments that have short maturities of less than a year, in particular, three months or less. Investors can liquidate holdings and withdraw their money whenever they need to.

Globally, a record US$7.03 trillion (S$9.35 trillion) has been poured into MMFs as investors seek refuge from uncertainties fuelled by new US trade policies. The key S&P 500 index has tumbled nearly 8 per cent since President Donald Trump's Jan 20 inauguration.

Domestically, the total net assets of MMFs domiciled here have more than doubled from $5.9 billion in January 2024 to $11.1 billion in January 2025, according to data from investment application Morningstar Direct.

Mr Isaac Lim, chief market strategist at investment trading platform Moomoo, says investors here are typically aged 45 to 55 and established professionals.