Seeking Safety, Investors Stash Cash in Money Market Funds

Money market mutual funds, which invest in short-term debt securities with a maturity of one year or less and often 30 days or less, have recently become more popular due to uncertainties in the financial market, investment companies said Tuesday.

According to an association of investment trust companies, 516 billion won ($397 million) of cash flowed into money market funds for the first nine days of this month, accounting for 46.8 percent of the 1.1 trillion won growth in the total money entrusted to investment firms.

In May, money market funds recorded 3.2 trillion won of net inflow, more than the entire growth in total mutual funds, which was 3.1 trillion won. Some classes of funds recorded net outflows for the period.

The amount of money entrusted to investment companies has grown by 7.8 trillion won this year to Saturday. Money market funds accounted for almost all the growth, 7.7 trillion won.

On the other hand, only 691.7 billion won had been put into stock market mutual funds this year, as of Saturday. Cash of 6.97 trillion won flowed out of blended funds, whose assets are composed of a combination of stocks and bonds.

Analysts said that the current instability in the financial market is giving people more incentives to focus on short-term investment.

Currently, return rates on money market mutual funds are about 5 percent, which is lower than the interest rate of 6.1 percent on three-year government bonds.

"We have recently focused on stability in operating money market funds, after the funds were seriously harmed in April as interest rates suddenly jumped," said Park Seong-won, an official at Hyundai Investment Trust Management Co.

by Chung Jae-hong