Money Market Funds Yield 3.9% Annually; September Performance Compared
Translated & summarized from N12 by baba
Israeli money market funds yielded an average of 3.9% over the past year, with September returns aligning to the Bank of Israel's 3.25% interest rate. Top funds in September included IBI Cash Shekel Kosher and Yelin Lapidot Cash Kosher. Key selection factors are management fees and entry charges, with funds offering greater tax advantages on real gains compared to bank deposits, especially during inflation. Investors should monitor fees as they can change.
The story in 5 lines · by baba
- Money market funds yielded an average of 3.9% over the last 12 months.
- September returns for money market funds aligned with the Bank of Israel's 3.25% interest rate.
- IBI Cash Shekel Kosher and Yelin Lapidot Cash Kosher were top performers in September.
- Management fees, ranging from 0% to 0.25%, are a key factor in choosing a fund.
- Money market funds are taxed on real gains, offering a potential advantage over deposits during inflation.
Money market funds in Israel saw their monthly returns align with the Bank of Israel's interest rate cut to 3.25% in September. The average monthly yield for these funds was approximately 0.26%, translating to an annual rate of about 3.25%, mirroring the prevailing interest rate.
Over the past 12 months, these funds delivered an average return of around 3.9%. This figure reflects a period when interest rates were higher and is therefore not indicative of future performance. Money market funds primarily invest in short-term government bonds, bank deposits, and high-rated bonds with maturities up to 90 days. Funds are liquid daily, and their yields closely track prevailing interest rates, adjusting within weeks to rate changes.
In September, fund performance was tightly clustered between 0.24% and 0.28%. Top performers for the month included IBI Cash Shekel Kosher, Yelin Lapidot Cash Kosher, Meitav Cash Liquidity Management, More Cash Liquidity Management, and Meitav (00) Cash Jumbo. Over the last year, More Cash Liquidity Management led with a 4.03% return, followed by Meitav Cash Liquidity Management at 4.02% and Meitav Cash Shekel Kosher at 4%. Funds not investing in corporate bonds, such as Altshuler Shaham Cash without Corporates (3.67%), were at the lower end, sacrificing some yield for even lower risk.
When selecting a money market fund, key factors beyond similar asset allocation and short maturities include management fees, which range from zero to about 0.25% annually. Even small differences in fees significantly impact returns on similar yields. Some funds also charge an entry fee, or 'addition rate,' which can offset savings from low management fees for short-term investors. It's advisable to monitor management fees as they can change.
A key difference between money market funds and bank deposits lies in taxation. Deposits are taxed at 15% on nominal gains, while money market funds are taxed at 25% but only on real gains above inflation. This tax structure makes funds more advantageous during higher inflation periods. Funds also offer greater flexibility, with yields adjusting constantly to market rates, unlike fixed-term deposits.
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