Cash plus funds are low-risk portfolios with high liquidity, containing cash or cash equivalent values and short-term government debt securities. They are best suited for conservative investors and those with a short-term investment horizon. The funds also contain debt securities such as bonds, but these pay little interest compared to longer-term bonds. They are suitable for people who prioritize preserving capital over creating growth and should have a clear investment strategy. The fund manager decides which securities to buy and when to sell them, but cannot purchase securities that do not align with the fund’s investment strategy.
A cash plus fund is a low-risk portfolio of investments 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 available in other nations. Cash plus funds are best suited for conservative investors and people with a short-term investment horizon.
Although the composition of cash plus funds varies among investment firms, a fund plus cash generally contains a certain amount of cash or cash equivalent values. The funds normally contain cash values denominated in the national currency. Short-term national 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 typically contain money market mutual fund shares that are made up of cash equivalent securities.
In addition to money market shares and cash securities, these funds also contain debt securities such as bonds. In general, the funds only contain bonds issued by local government agencies or corporations. Most bonds have a yield of six months or less, although some funds include bonds with a duration of a year or more. Bond yields are set at auction, and investors demand higher payments on long-term bonds because issuers have more chances of default. Therefore, cash plus fund bonds pay very little interest compared to 10-year or 20-year bonds.
Over the long term, someone investing in a more cash fund has to deal 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 concerned with preserving capital than creating growth. Some investors also use cash plus funds to generate supplemental income, although other types of funds that contain dividend-paying stocks and longer-term bonds provide investors with higher monthly returns.
As with any type of mutual fund, a cash plus fund should have a clear investment strategy, and this should be detailed in the fund’s prospectus and marketing materials. The fund’s day-to-day operations are presided over by a fund manager who decides which securities to buy and when to sell the fund’s existing holdings. Despite having some degree of autonomy, the fund manager cannot use the fund’s assets to purchase a type of security that does not align with the established investment strategy of the fund. In general, cash plus funds are open-end funds, which means that investors can redeem their shares at any time.
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