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
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