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Spotlight on... Cash Funds

Cash funds are pooled investment vehicles that offer an alternative to bank or building society accounts. Given the prospect of continued volatility and low interest rates in the foreseeable future, you may be well advised to consider an alternative to simply leaving all your cash on deposit.

By investing into a cash fund you achieve diversification benefits because the fund manager invests into a range of cash, or near cash, instruments, designed to increase returns above vanilla bank deposits. Cash funds offer competitive rates of interest coupled with the flexibility to access your savings at any time.

Because cash funds can hold assets other than deposits, for example, securities such as commercial paper that carry a higher risk than cash, careful fund selection is imperative. We currently prefer those funds that offer a well-balanced range of assets with low exposure to commercial paper.

We can also source accumulation cash funds where your investment can be left to build up without interest being paid. This could have certain tax advantages depending on your tax status. With this type of fund, you only become liable for tax on the sale of your units.

The benefits:

  • Offers the potential for higher returns than is currently available for a normal cash deposit
  • High levels of liquidity
  • Potential regular income stream
  • Diversification of risk
  • Potential tax advantages
  • Seen as a stable option in volatile markets.

The risks:

  • With corporate bonds there is a risk that the issuer could default on the debt. To help manage this risk, most funds will only invest in companies who maintain a long term A+ or higher credit rating and this risk is diffused further through the diversification offered by the funds.
  • The price of, value of, or income from your investments can fall as well as rise and you may not get back the original amount invested
  • If investments are made in multi-currency cash funds or in a currency other than the investor's domestic currency, exchange rate changes may affect the value of investments
  • Past performance is not necessarily a guide to future performance.

This facility, and others, can be integrated with our wide range of banking, treasury and investment services through our Focus platform.

To find out more about these and other options available, please contact our client services team on +44 (0) 1624 645000.