Cash plus funds are low-risk investment portfolios with high liquidity, containing cash or cash equivalents, short-term government debt securities, and money market mutual funds. They also hold domestically issued bonds with yields of six months or less. These funds are suitable for conservative investors interested in preserving capital rather than creating growth. The fund manager oversees the day-to-day operations and cannot use the fund’s assets for securities unrelated to the investment strategy. Cash plus funds are open-ended, allowing investors to redeem shares at any time.
A cash plus fund is a low-risk investment portfolio that provides investors with a high degree of liquidity. The term “cash plus fund” is most commonly used in Australia, New Zealand and South Africa, although similar types of conservative funds are commonly available in other nations. Cash plus funds are best suited for conservative investors and people with a short-term investment horizon.
While the composition of cash plus funds varies among investment firms, a cash plus fund typically contains some amount of cash or cash equivalents. The funds usually contain cash securities denominated in the national currency. Short-term domestic government debt securities are considered cash equivalents, as are some certificates of deposit (CDs) issued by major banks. In addition to holding these securities, cash plus funds usually hold shares of money market mutual funds which are made up of cash equivalent securities.
In addition to money market shares and cash securities, these funds also hold debt securities such as bonds. Typically, the funds contain only bonds issued by domestically based government agencies or corporations. Most bonds have a yield of six months or less, although some funds include bonds with a maturity of one year or more. Bond yields are set at auction, and investors demand higher payments for long-term bonds because issuers have a greater chance of default. Therefore, cash-plus-fund bonds pay very little interest compared to 10- or 20-year bonds.
Over the long term, investors in a cash plus fund have to contend with the risk that inflation will outpace the bond fund’s return. Because of this risk, these funds are suitable for people who are more interested in preserving capital than creating growth. Some investors also use cash plus funds to generate supplemental income, although other types of funds containing dividend-paying stocks and long-term bonds provide investors with higher monthly returns.
As with any type of investment fund, a cash plus fund must have a clear investment strategy, and this must be detailed in the fund’s prospectus and marketing materials. The day-to-day operations of the fund are overseen by a fund manager who decides which stocks to buy and when to sell the fund’s existing holdings. While having a certain degree of autonomy, the fund manager cannot use the fund’s assets to buy a type of security that is not related to the fund’s stated investment strategy. Generally, cash plus funds are open-ended funds, which means investors can redeem their shares at any time.
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