Part 4/7: What Are the Risks in Money Market Funds?
“They say it’s low risk... but is it really safe?”
If you’ve invested in a money market fund (MMF), or you’re thinking about it, you’ve probably been told it’s a safe and easy place to grow your money. That’s mostly true.
But every investment has some risk. So in this article, we break down:
The real risks behind MMFs
What protects your money
How to choose a safe, well-managed fund in Uganda
⚠️ 1. What Could Go Wrong?
MMFs are not magic. They face three main risks:
a) Credit Risk
The fund invests in short-term debt like T-bills and corporate paper. If one of these borrowers fails to pay back, the fund can lose money.
Corporate paper, also known as commercial paper, is a short-term loan issued by a company (instead of a bank or government) to raise money for things like paying suppliers, covering salaries, or managing cash flow. It usually matures within 30 to 365 days and offers a higher interest rate than government securities — but with slightly more risk. Government securities (like Uganda Treasury Bills) are considered almost risk-free but corporate paper (e.g., a telecom company borrowing short-term) carries higher risk.
b) Liquidity Risk
If too many investors try to withdraw at once, and the fund can’t sell its holdings quickly, it may delay redemptions.
This usually happens during economic panic - like COVID lockdowns - but is rare in well-managed MMFs.
c) Interest Rate Risk
If interest rates suddenly rise, the value of some fund holdings may drop slightly. But because MMFs invest in short-term instruments, this effect is minimal compared to long-term bonds.
2. What Makes MMFs Safe?
Now the good news. MMFs are one of the safest investment products in Uganda because:
✅ They invest mostly in Treasury Bills
These are backed by the Government of Uganda — widely considered the safest investment in the country.
✅ They are regulated by the Capital Markets Authority (CMA)
Only licensed fund managers can run MMFs. They must follow strict rules on:
What they invest in
How much risk they can take
How they report performance
You can check the CMA Uganda website for a list of licensed Unit Trusts and Fund Managers.
✅ They are diversified
MMFs spread your money across many instruments (not just one borrower), reducing the impact of any single default.
✅ Most report daily or monthly performance
So you can see what’s happening and withdraw anytime.
3. What Should You Look for Before Investing?
Here’s your MMF safety checklist:
Regulation Is it licensed by CMA Uganda?
Fund Factsheet or Prospectus What is it investing in?
Liquidity How quickly can I access my money?
Performance History What has the return been over the past 6–12 months
Transparency Do they share clear monthly statements or updates?
Fund Manager reputation Are they well-known and trusted in the market?
❗ If you can’t get clear answers to these questions, don’t invest.
Bottom Line
Money Market Funds are low-risk, but not zero-risk.
They are safe when managed well, regulated and used wisely.
Your job as an investor: Pick a licensed fund, understand what you are buying, and don’t put in money you need tomorrow.
MMFs are not for a gamble, they are for growing your savings quietly in the background.
📬 Next in the Series:
“How to Open and Manage a Money Market Fund Account in Uganda”
We’ll show you exactly how to get started, what documents you need and how to track your earnings.
📩 Subscribe to Impala Market so you don’t miss it.
Read the previous article Part 3/7: How to Use a Money Market Fund in Your Financial Plan - Savings, Emergencies & Cashflow
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