Why do you invest in money market funds?

One word: Liquidity. Money market funds typically invest in short term monetary instruments, such as deposits in the banks. The advantage of these funds is that they can negotiate a flexible and better rate due to their sheer fund size as compared to individual's deposits.

As an investor, money market funds are useful as a temporary parking facility, i.e. to temporarily deposit the money in a liquid instrument after switching out from equity funds. Another plus point is that most of the money market funds don't incur sales charge and typically only charge 0.3 - 0.5% management fees per annum.

So, the question of whether you should have money market funds in your portfolio? The answer is YES, if you fulfill the following requirements:

1. You want to switch out from equity to cash while waiting for market upswing.
2. You have spare cash lying idle in the deposit accounts in the bank. Money market funds generally have a better yield than savings/current accounts in the banks.
3. In Malaysian tax perspective, money market funds are potentially more tax effective, if you have large sum of cash in the banks in the form of savings account/fixed (time) deposits as the interests earned from these accounts/deposits might incur tax.