Part 2/7: What Drives Money Market Returns in Uganda and How to Compare Funds

“I see the monthly statement showing the interest, but I don’t understand where it comes from.”

If you’ve ever wondered why your return this month was higher or lower than last month, or how to know which fund is doing well, this article is for you.

What Exactly Are You Earning?

When you invest in a Money Market Fund (MMF), the return you earn is based on the interest the fund earns from:

• Government Treasury Bills (T-bills)

• Short-term bank deposits (fixed deposits)

• Corporate paper (short-term loans to top-rated companies)

Each of these instruments pays a specific interest rate, and the fund manager mixes them to maximize yield while keeping risk low.

Why Do Returns Change Month to Month?

Your return may not be exactly the same every month. That’s normal. Here’s what affects it:

1. Treasury Bill Rates

• These are auctioned bi-weekly by Bank of Uganda.

• If T-bill rates go up, money market returns usually rise.

• If T-bill rates fall, your return declines a bit too.

For example, if the 91-day T-bill drops from 13% to 11%, your MMF might earn slightly less interest that month.

2. Cash Levels in the Fund

• If more people are joining the fund, it takes time to deploy all the new money into high-yield investments.

• Temporary cash drag can reduce returns slightly.

Temporary cash drag happens when a money market fund holds more cash than usual, often due to inflows from new investors, and hasn’t yet reinvested that money into interest-earning assets like Treasury Bills or fixed deposits. Until the fund manager deploys the cash, it earns little or no return, and this slightly reduces the average return for everyone in the fund that month.

3. Fees and Expenses

• Fund managers charge a small fee (usually 1% to 2% annually).

• The more efficiently they run the fund, the less it eats into your returns.

4. Risk Management Choices

• Some funds stay ultra-conservative to protect capital, earning slightly lower but more stable returns.

• Others take slightly more risk (e.g., lending to blue-chip corporates) to try and boost returns.

An ultra-conservative money market fund strategy means the fund manager chooses to minimize risk at all costs, even if it results in slightly lower returns. The fund only invests in the safest and most liquid assets, typically short-term government treasury bills and top-rated bank deposits, avoiding anything that could lose value or delay redemptions.

How to Compare Different Money Market Funds

Not all MMFs are the same. Here’s a simple checklist:

1. Annual Yield: Look at the net return to investor (after fees)

2. Consistency: Is the return stable across 6–12 months?

3. Liquidity: Can you withdraw in 1–2 days?

4. Fund Size: Larger funds may get better investment deals

5. Transparency: Are statements and returns easy to access?

6. Fees: Lower is better but performance matters more

7. CMA Licensing: Only invest in licensed funds

Simple Rule of Thumb

A good MMF should earn you 8% to 12% per year (net of fees) in Uganda today, depending on market conditions. That’s UGX 80,000 to UGX 120,000 per year on a UGX 1 million investment.

📌 What You Can Do as an Investor

• Ask questions: Request the current yield or fact sheet before you invest.

• Track your monthly returns: Keep a record, even in a notebook or Excel sheet.

• Reinvest consistently: Compounding monthly interest leads to better long-term gains.

• Watch market rates: T-bill auction results are a good proxy for MMF performance trends.

📬 Coming Up Next

“How to Use a Money Market Fund in Your Financial Plan - Savings, Emergencies & Cashflow.”
We shall explore practical ways to use MMFs in everyday money life, not just as a passive investment.

Read the previous article Part 1/7: What is a Money market Fund and Why is everyone talking about it in Uganda?

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