OPINION: Technology improving efficiency and transparency of money market investing

By Amos Mzenge

Money market funds (MMFs) are low-risk investments that deliver returns above the inflation rate. They are inarguably the most convenient of all unit trusts and are dear to the general public for several reasons.

For starters, they offer a competitive interest rate which is compounded periodically over the investment's lifetime, creating a snowball effect. Another reason why they are familiar is that the initial investment is relatively low, where some funds require as little as Ksh. 1,000 to start. 

While these factors make money market funds attractive to the masses, investments have a fair share of challenges. These include the intricacy of getting started and transacting, and the lack of transparency, raising investors' skepticism. 

Globally and to some extent locally, for money market providers, the inclusion of technology in service delivery has been a game changer. Digitization of the sector has enhanced the experience and funds' ability to offer more value to their customers in several dimensions amounting to more convenience, efficiency, and transparency. 

Automating the investment process has allowed for a more efficient setup, quicker processing of transactions, and reduced the need for manual intervention. For instance, creating an account would usually involve a long, tedious, and uneconomical process of filling out paperwork and scanning the documents or making a trip to your Money Market Fund provider to submit the forms.

An investor would then have to wait several hours or days for 'processing.' Today, providers, within the Regulatory confines, allow one to use a web portal, mobile app, or USSD code to sign up. This has led to faster and more accurate dealings and reduced operational costs for investors.

Additionally, access to information for investors through these electronic platforms has made it easier for investors to access information on money market instruments and to track their investments. They can also peruse online material that enables them to make more informed decisions. 

The use of big data has also positively impacted money market investing. By analyzing large amounts of data, investors can better understand market trends and make more informed investment decisions.

The growth and availability of non-traditional, unconventional data from the internet give fund managers an informational advantage enabling them to make more informed investment decisions. Consequently, this has led to more accurate pricing of money market instruments and better risk management. 

Although MMFs are regulated products and are considered relatively safe, blockchain technology has taken their transparency a notch higher. The technology uses a decentralized network of computers to verify every transaction. This creates a permanent and tamper-proof ledger by recording every transaction.

The unalterable ledger means that whether an MMF is doing a fund transfer or settling a trade, it is done transparently. Hence, incorporating blockchain technology in fund management can give investors greater confidence in the integrity of the money market because of the reduced risk of fraud. That said, safeguards by way of Regulation have to build around blockchain technology in the financial services sector.

Technology can enhance investors' experience while solving legacy issues within money market funds. But it is only as good as its' execution.  

 Amos Mzenge is the Manager, of Enwealth Capital Limited. Email: amzenge@enwealth.co.ke