When it comes to a business’ finances, financial teams have a lot on their plates. They’re responsible for making sure that the company has enough cash flow to cover operations, managing relationships with lenders and investors, overseeing financial planning and budgeting, among many other tasks. With so much to keep track of, it’s no wonder that some CFO’s overlook certain investment opportunities – like overnight funds.
What is an institutional money market fund?
Institutional money market funds are a type of mutual fund that invest in short-term debt instruments, like certificates of deposit, commercial paper, and government securities. They’re often used by corporations as a way to park short-term cash that isn’t needed for immediate operations. And while they may not be the most exciting investment option out there, they can actually be a wise choice for CFO’s – especially in today’s rate environment.
Why Institutional Money Market Funds Make Sense for institutions
There are several reasons why institutional money market funds can be a good option for institutions. First, they offer relatively high returns compared to other cash equivalents. This is because they’re able to invest in higher-yielding instruments, like commercial paper and government repo securities. Additionally, institutional money market funds can offer greater liquidity than other types of investments, which is important for businesses that need to access their cash quickly. Another reason why institutional money market funds can be attractive is that they tend to be very stable. Unlike stocks or even some bond funds, the value of these funds doesn’t fluctuate much, or in the case of CNAV (constant net asset value) funds, at all. This makes them a good option for businesses that want to avoid any volatility in their investments.
Caveats to Consider
Before investing in an institutional money market fund, there are a few things that CFO’s should keep in mind. First, while these funds tend to be relatively stable, there is still some risk involved – especially when it comes to interest rate changes. In the case of FNAV (floating NAV) funds, if rates go up, the value of the fund will go down (and vice versa). Additionally, some institutional money market funds place restrictions on withdrawals , so it’s important to read the fine print before investing. For CFO’s who are looking for a safe place to park their company’s cash without sacrificing returns, institutional money market funds can be a wise choice. However, it’s important to understand the risks involved with each fund before investing – particularly when it comes to interest rate changes. Overall though, these funds can offer stability and liquidity – two things that any savvy CFO should be looking for in an investment.
Ryan Dowding
Senior VP
rdowding@ibnbonds.com
