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New Analysis: Why ABSA killed SA's 3rd largest unit trust?

Absa's Money Market Fund, which was SA's third-largest unit trust and was worth R800 million at the time of its closure, has sparked a lot of speculation. Following the Money Market Fund's closure, the big question is:

Where will clients transfer their money to now?

ABSA's Money Market Fund was closed due to the following factors:

Confusion over unit trust

It's easy to understand why the lines were slightly blurred to investors. Absa clients were able to withdraw money easily from the fund via an ATM, just like one would with a bank account. Absa also has the only money market fund whose name is so closely associated with a retail bank. These were merely two factors that lead to confusion over how the trust functioned and why the trust was positioned that way within the market. 

Bank deposits suit Absa better.

All in all, it appeared that Absa earns a much fatter profit margin from investments in its savings accounts than from its money market fund. This is suspected to be the most obvious reason for the change. 

Pension fund benefit

Unlike the fund's predecessor, Absa's new money market fund is compliant with Regulation 28 of the Pension Funds Act. This regulation puts limits on where money in retirement funds can be invested. Therefore, theoretically, a pension fund can be entirely invested in the money market fund. Thereby, Absa may well have faced calls from pension funds to make this change.

Possible takeover?

Another theory which Absa will not comment on is that it is potentially restructuring its asset management business ahead of a planned sale. At the moment, it is suspected that the buyer is probably Sanlam and Patrice Motsepe's African Rainbow Capital (ARC). For over a year now, there has been fierce speculation that such a takeover was on the cards.

Money market fund can hurt Absa. 

Having a strong money market fund like Absa's working in the market does not always operate in Absa's favor. To provide the best returns to its investors, the fund is continuously looking for the best interest rates from financial institutions, which necessitates the use of short-term resources. And since it is such a large fund, it has a lot of pricing clout. This means that the fund will effectively raise the interest rate that Absa would pay on its short-term borrowings.

With all of the above factors at play right now, wouldn't it be better to put your money somewhere safe while still earning a decent return?

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Meerkat savings product information: 

If you choose Meerkat as your savings vehicle, you can count on a generous CPI +1 % return! With a money market fund you may earn less than inflation meaning you will see the value of your money destroyed.

Why should you start to save with Meerkat? 

You'll get a personalized plan when you save with Meerkat. You can set your goals and we'll show you how to prioritize and monitor your progress. We'll be there for you every step of the way, and we'll invest your money based on your personal objectives.

Second, you'll still be able to access your money through the internet. With the click of a button, you'll be able to top up or withdrawAt Meerkat, we don't believe in secret payments!

Save to Win!

Finally, as a regular Meerkat saver, you will be entered into our monthly prize draw. For every R100 you save,  you receive a ticket into the Meerkat "Save to Win" prize draw.  You stand the chance to win the grand prize of R1000 every month. Along with a range of smaller prizes.

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Enlist the help of your friends to increase the number of monthly entries

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T's & C's apply