Money Market Funds in Canada: What Are They & Which Ones Are Best

What Is A Money Market Fund?

Money market funds may be the best bet for those looking for a safe and low-risk investment instrument.

Money market funds, sometimes known as money market mutual funds, invest money in short-term debt securities.

Examples include short-term treasury bonds or commercial paper.

Securities held in money market funds are selected based on their high credit ratings, high liquidity, and short-term maturity dates.

The goal of these funds is to invest in stable assets while remaining highly liquid.

While there are no guarantees against losses, money market funds are generally known as some of the safest investments.

Money market funds make suitable short-term investments, as the investment instrument’s price stability and liquid nature make it easy to move money in and out of funds.

Did You Know?

According to the Canadian Investment Funds Standards Committee (CIFSC), Canada has over 100 money market funds. According to CIFSC, Canadian funds can be classified as a money market fund as long as at least 95% of their assets are allocated to Canadian dollar-denominated investments

In Canada, money market funds are offered by many financial institutions.

These institutions create, manage, and sell these funds to clients.

Similar to a mutual fund, a small management fee is charged for these services.

1. TD Canadian Money Market Fund

This money market fund falls within the lowest risk category based on their own rating system.

This low-risk category has a stated goal of preserving capital and maintaining liquidity.

The fund has been around since 1988 and had its lowest yielding year in 2015 when the fund returned just 0.19%.

The fund has a Management Expense Ratio (MER) of 0.2%.

With over $1 billion in assets, the vast majority of the fund is held in cash or cash equivalents, with only 1.5% invested into domestic bonds.

The assets held in this fund are 100% geographically based in Canada, meaning little geo diversification of assets. 

2. Scotia Money Market Fund- Series A

The Series A Money Market Fund is one of several offered by Scotiabank.

Again, the money market fund is rated in the lowest risk category based on Scotiabank’s own system.

The fund has been around since 1990 and manages roughly $200 million in assets.

This fund charges a 0.59% MER, much higher than the TD Canadian Money Market Fund.

In terms of assets, this fund consists of approximately 33% cash, 20% Canadian liquid bonds, 20% Canadian short-term notes, 15% commercial paper, and 10% Canadian bankers’ acceptances.

This makes the fund a bit more diversified than others, increasing safety and reducing the risk of losses.

In the unlikely chance of a drastic drop in government bond yields, the exposure to commercial paper and other assets means that downside will be limited compared to money market funds offered by competitors.

3. CI Money Market Fund Series A

The CI Money Market fund Series A was created by CI Global Asset Management in 1990.

CI Global Asset Management rates the fund as low risk, holding primarily cash or equivalents and Canadian bonds.

The portfolio holds over 99.97% Canadian-based assets, making this a less diverse fund than others.

With a current MER of 0.63%, this fund has higher fees than other comparables.

The Series A fund is just one of 13 that CI Global Asset Management manages. 

Calculating returns on money market funds

Advantages of Money Market Funds

1. Low-Risk

For those looking for a conservative investment opportunity, money market funds are one of the best options.

Money market funds aim to provide a low-risk, high liquidity investment.

The majority of securities held in a money market fund are short-term debt instruments, and these shorter time frame maturity dates reduce uncertainty.

In addition, the funds usually comprise high-quality debt like government treasury bonds or corporate paper.

2. Liquidity

Money market funds are built to be highly liquid.

For those looking to invest short-term, money market funds are a great way to make some smaller returns and pull out money at any time.

Money can be pulled from these funds and available as soon as the next day.

This can be a better option than stocks or bonds for short-term investors who prioritize liquidity.

Disadvantages of Money Market Funds

1. Low returns

It is not surprising that money market funds offer lower returns than higher-risk investments.

In fact, with many of the funds averaging under 1% annual return, money market funds sometimes struggle to keep up with inflation.

This can result in investors losing purchasing power, as their money does not grow as quickly as the inflation rate.

2. Management fees

The funds mentioned show that money market funds are often subject to high MERs.

With such a low annual return already, these fees can eat into your profits even more.

MERs and other expenses are essential to watch, when choosing a money market fund.

Frequently Asked Questions

  • Can you lose money in a money market fund?
  • What is an example of a money market fund?

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