Assessment on the factors affecting the return on money market fund

ABSTRACT: Statement of the Problem The researchers assessed the factors that affect the return on money market fund as perceived by the First Metro Asset Management Inc. It specifically determined the weight of the money market instruments in the portfolio of Save and Learn Money Market Fund, the return on investment of SALMMF as compared to the PSE index from 2009-2013, the degree of impact of the economic factors to the return on money market fund of FAMI and the significant correlation between the rate return on money market fund of FAMI from 2009-2013 and the economic factors. Hypothesis There is no significant correlation between the rate of return on MMF of FAMI from 2009-2013 and the economic factors such as interest rates, inflation rates, GDP/GNP and PSE index. Research Design The study used the evaluative method since the research is concerned about the assessment of the factors affecting the return on money market fund. The researcher considered the evaluative method as the most appropriate to use in assessing the performance outcome or impact of the set of variables on another one. Determination of Sample Size The research was done in the premises of FAMI, focusing on all fund managers who are knowledgeable about the research. There is a team composed of fourteen (14) fund managers who recommends the buy and sell decisions in the mutual fund of FAMI. The Subjects The subject on this study was taken from the First Metro Asset Management Inc. located at PSBank Center, Paseo de Roxas Avenue Salcedo Village, Makati City for the period of July to August 2014. The respondents are composed of 14 fund managers. The research Instrument The instruments used in this study were the survey questionnaires, personal interview and company’s financial statements analysis. Validation of the Research Instrument Primary data obtained in the survey and interview that were used in validating the research instruments for the data needed in the research can only be gathered through distribution of questionnaires and conducting of an interview. Data Gathering Procedure The researchers used the survey method because it is the fastest way to find out the responses to the research problem. Permission to the Marketing Department Head of First Metro Asset Management Inc. was requested for the purpose of conducting the survey. Data Processing Method The researcher tabulates and processes the data based on the frequency of the weight of the money market instruments in the portfolio of Save & Learn Money Market Fund and also based on the mean of the respondents perception on the degree of impact of the economic factors to the return on money market fund of FAMI. After manual processing, the researchers input information to solve, analyze and interpret the information. Statistical Treatment The researchers used frequency distribution, percentage, ranking, line graph, arithmetic mean and Pearson product moment correlation. Findings In the light of the questionnaire and data analysed in this study, the following findings are presented: - The weight of the money market instruments in the portfolio of Save and Learn Money Market Fund is accordingly: Government Securities, 40.5%, Commercial papers, 34.07& and Other Placements, 25.5%. - According to the graph of return on investment from 2009-2013, its performance soars high during 2011 to 2012 gaining 1.88% and 2.13% however it immediately declines on 2013 to 0.56%. - According to the graph of the PSE index from 2009-2013, its performance is at the peak in 2009, earning a 63.00% and at the rock bottom in 2013 with a rate of 1.30%. The graph clearly shows a fluctuating rate. On the one hand, it was recovered on 2012 at 32.95% from 4.07% but still the rate is descending. - According tp the graph that shows the comparison between the PSE Index and the ROI of FAMIs MMF, the former appears to have a decreasing trend from 2009-2011. Although it increased in 2012 with a rate of 32.95%, still it hit rock bottom at 1.30% the following year. Therefore it manifests instability in its performance. While the latter is somehow stable due to its slight changes of less than 1%. - The degree of impact of the economic factors to the return on money market fund of FAMI is as follows: high impact as to the level of interest and inflation rate to the return on investment of FAMI and medium impact as to the level of GNP/GDP & PSE index. - Using the Pearson Product Moment Correlation to measure the relationship between rate of return of FAMI for 2009-2013, as the dependent variable & economic factors, as the independent variable, we arrived at the following correlation coefficient: . The 0.42 correlation coefficient for interest rates means that the two variables have a substantial relationship and the ROI is moderately affected by the interest rates. . The 0.18 correlation coefficient for inflation rates which means that the two variables have an almost negligible relationship and the ROI is not so much affected by the inflation rate; . The 0.20 for the GDP and 0.21 for the PSE index correlation coefficients both means that the two variables have a definite but small relationship and the ROI is slightly affected by the GDP and PSE index. Conclusions: In view of the foregoing findings, it is logical to conclude the following: - The respondents from first Metro Asset Management Inc allocated more of their money market instruments in government securities. It only proves that the allocation of the fund managers is in line with the objective of the money market fund, which is to invest in short-term and highly liquid securities that mature in one year or less from their issue date. - It is also concluded that there is a large difference on the graph of PSE Index compared to the ROI of FAMI’s MMF. Since the indices of other MMF are not far from FAMI’s, it shows that the whole MMF industry is underperforming in the past 5 years. - The respondents from first Metro Asset Management Inc perceived that there is a high impact in the level of interest and inflation rate to the return on investment its money market fund. As to the level of interest rates, Bangko Sentral ng Pilipinas has the great authority to raise and lower interest rates. Moreover according to the study of Dr. D”Silva, it has been found that due to the increase in the level of inflation rate, growth in prices has greatly affected the lending rates of short term financial instruments thus making borrowings costlier for the market participants. - There is a significant relationship between the ROI of Money Market Fund of FAMI and - the economic factors. The strength of relationship between the return on investment and interest rate is moderate, slight correlation for the PSE index, while there is a very low or an almost negligible relationship for the inflation and the GDP. As for the moderate relationship of interest rates, it is an accordance to the answers of the interviewee during the interview that interest rates affect the return on investment depending on the situation. For there are instances where the interest rates fall or ise, but still there is a potential of increase in the return on investment. As to the the very low relationship of inflation rates, it is in line to the answers of the interviewee during the interview that inflation rates will not affect much as long as they have good pool and management of their fund. As to the slight relationship of GDP, the return on investment affects the country’s GDP because it is included in its computation. However, the gradual increase and decrease in the GDP will not hugely affect the ROI. As to the slight relationship of PSE index, the return on investment of FAMI will either increase or decrease due to the changes in the PSE index, but its changes will only be minimal. It is not all the time that the ROI of FAMI will also change if the PSE moves. Recommendations: In the light of the findings and conclusions the following recommendations are proposed for future consideration: - Since the investors are losing their appetite on short-term investments, the First Metro Asset Management Inc. should innovate more ways to bring people back to investing in money market fund. It can be through strengthening the marketing strategies that were effective in increasing the number of investors from the past years and thus promoting to the market the advantages of the money market fund and how it operates. - The First Metro Asset Management Inc. should have techniques in analysing the market and research in which companies are worth buying and investing in terms of short term corporate securities for its money market fund. They should invest more of its fund in low-return government bonds, therefore giving minimal return that affects the return on investment which shows a decreasing trend. - The fund managers of FAMI need to be responsible enough in handling the fluctuating conditions of the economy. They shall manage to meet the economic trends in accordance to the company’s policies and standards. They need to be constantly aware of what is happening within their portfolios in mind. Fund managers can start conveying what the firm stands for and understanding investors needs, and then implementing what the manager promises to investors. So when a portfolio or strategy underperforms, it is important to convey to clients in the reasons why the process has not been as successful as it has been in the past.

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