Money market funds, neglected during the negative interest rate period in the eurozone, have experienced a strong resurgence of interest since rates started rising in 2022. Designed to invest short-term excess liquidity with very low or almost zero risk depending on their asset allocation policy, they offer an interesting alternative to term deposits and savings accounts.
What is a Money Market SICAV?
Money market SICAVs are Open-ended investment companies belonging to the universe of Collective Investment Schemes (CIS). They typically invest in short-term debt securities, also called negotiable debt securities, which include instruments such as Treasury bills.
There are three types of money market funds:
- Variable Net Asset Value Money Funds: Invested in very short-term securities (2 to 12 months).
- Constant Net Asset Value Money Funds: Primarily invested in Treasury bills, guaranteeing maximum stability.
- Low Volatility Net Asset Value Money Funds: A compromise between the two previous types.
Advantages of Money Market Funds: An Ultra-Flexible Cash Investment Product
- Permanent Availability: Funds are always accessible and can be withdrawn at any time. In this respect, money market funds offer a unique value proposition compared to term deposits.
- Extremely Low Risk: No stocks or bond debt, minimal exposure to market fluctuations.
Yield and Fees
The yield of money market funds depends on money market rates (Euribor, €STR).
Fees to keep in mind:
- Entry Fees: From 0 to 1%, often negotiable.
- Ongoing Charges: Management, custodian, performance fees.
- Exit Fees: Rarely applied.
- Life Insurance Fees: Approximately 0.8% annually in addition to management fees.
Taxation of Money Market Funds
For individuals, gains from money market funds, whether from dividend distributions or capital gains, are subject to the 30% flat tax (12.8% income tax + 17.2% social security contributions) in France. Individual investors can opt for taxation according to the progressive income tax scale if it is more advantageous for them.
Money market funds are not eligible for the Share Savings Plan (PEA), but some institutions offer similar funds compatible with the PEA. As a reminder, the PEA is reserved for investments in European shares and CIS that invest predominantly in shares, while money market funds primarily invest in short-term debt instruments (Treasury bills, certificates of deposit, etc.).
Conclusion
Money market funds offer a secure and liquid investment, ideal for putting excess cash to work, even when it's very temporary. The profitability of money market funds essentially depends on the level of central bank key interest rates. The higher these rates, the more attractive these investment vehicles become for savers and treasurers. Before allocating capital to a money market fund, it is recommended to analyze the fees and its composition to fully understand your investment.
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