In an extraordinary move, Absa has decided to close its popular Absa Money Market Fund. It says that many investors in the fund are under the mistaken impression that it guarantees the unit trust.

South Africans have invested almost R86 billion in the unit trust, which has been around for 25 years.

The money market is where banks and other institutions lend and borrow money for short periods of time — anywhere from one night to a couple of months. Money market funds invest in these short-term credit assets. These unit trusts seek to give a better return than a one- to three-year fixed deposit bank accounts, and are seen to be among the most conservative investments.

But a survey showed that the majority of its retail clients believe the fund capital and its returns are guaranteed by the bank, Absa said in in a statement, first reported by Business Day.

“However, the [money market unit trust] is not a bank account – it is a collective investment schemes product (also known as a “unit trust”) and therefore capital and returns are not guaranteed. We have therefore decided to close the [fund] as of 6 July 2021 (the closure date), in the best interest of our clients, and given our findings that the majority of retail clients believe that their capital and returns are guaranteed.”

Investors in the fund will receive their investment back, or they can switch to another fund before 1 July.

The bank says investors can be transferred to an Absa investment bank account, which is guaranteed by the bank and currently offers 4.5% a year “which is equivalent or better than what you are currently receiving from your (money market fund) investment”.

The Absa money market fund’s effective yield dropped from 6.74% a year ago to 3.85% by February.

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