Investing in monetary funds unjustly popular? | BNT Diamonds
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Investing in monetary funds unjustly popular?

12 Jul 21
  • Negative deposit rate as defense mechanism
  • institutional investors want to limit losses

Which private investor is willing to be part of the ability to invest with a negative return? You would be kind of crazy. Nevertheless that is exactly what institutional investors, such as pension funds and insurers, do. Billions of euros are being invested in such funds, of which you already know that the return will be negative. Why do they do this?

Investments since crisis 2008

Negative deposit rate

Europeans have about 1,200 billion invested in monetary funds such as term deposits, treasury bills or bonds with a short maturity. Until 2008, this was a nice alternative to the rock-solid and classic savings account. But this changed after the financial crisis. The European Central Bank decreased the intrests, causing hardly anything to earn on short term investments. The deposit rate of the ECB is now even negative. This means that financial institutions that want to put excess capital at the ECB, will have to pay while they used to earn for this.

Because of several new and stricter laws, financial institutions must build up a larger buffer to cope with potential new financial crises. Herefore they rather choose money from retail customers and, to a lesser extent, businesses. These are generally more loyal to their financial institution and do not change as quick from bank. Large sums of money are shifted more regularly with institutional investors. Because of this, financial institutions are not so welcoming towards them and handle a defense mechanism with the negative deposite rate. This is why investment institutes are automatically being driven towards monetary funds with a negative return.

Limit losses

However, it remains difficult to understand why we would consciously choose for investments which are not rendering.

A monetary fund offers the combination of safety, risk spreading and liquidity. Since the financial crisis, such funds can only invest in safe paper, the so called A-ratings are no longer allowed. Investing in a monetary fund also offers the possibility to spread the risk. After all they do not invest in only one institution. The funds are spread out over multiple publishers. Finally, who invests with large sums, would want to dispose these more flexible. Monetary funds offer that flexibility.

The target for the institutional investors is ultimately to minimize the losses. From this strategy is investing in monetary funds with a negative return a reasonable option.

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Fabienne Rauw
About Fabienne Rauw
BNT Diamonds Antwerp

Fabienne, manager of the German market is able to guide every client with finding the right jewel. She takes care of most of the German orders, but also takes other task on her plate. Thanks to her six years of experience at BNT Diamonds she acquainted well with the product and the marketing around it. Her degree in PR ensures that BNT Diamonds is well presented across all media channels. For anyone looking into a new investment opportunity, Fabienne is the perfect guide in this process. No question will be left unanswered, and she will help you every step of the way.

With this article, BNT Diamonds strives to inform you thoroughly about investing in diamonds. No investment can be guaranteed to be without risk or fully according to your expectations. That is why we recommend to research the risks and aspects of investing in diamond properly to ensure that you make the right choice for your portfolio.