Some cash management portfolios promise higher yields, but at what cost?
Cash management is a key component of any sound financial strategy. Traditional savings accounts offer inadequate returns (especially in low interest rate, high inflation climates), leaving many in search of smarter ways to earn from their cash while maintaining flexibility.
This is where cash management portfolios come in, offering a solution that better balances safety and returns while ensuring liquidity. Because of the high quality and shorter maturity nature of the underlying securities, these cash solutions can ensure high liquidity, very low risk and a rate of return close to inflation
However, not all cash management solutions are created the same. We have seen a proliferation of cash management solutions in the market that sometimes advertise very high headline returns in order to attract clients. However, these products come with additional risks because they tend to allocate part of their investments to short duration bonds, which come with additional duration and credit risks. This results in higher fluctuations in the net asset value (NAV) of these products compared to pure money market-based cash products.
Therefore, it’s important to understand the underlying funds of each portfolio you invest in to ensure that you are making the best decisions for your financial goals. In this article, we will deep-dive into the differences between money market funds and bond funds, and examine how Syfe’s products stands out in the market.
Table of Contents
What is a Cash Management Portfolio?
A cash management portfolio is a financial product that invests your cash into low-risk, short-term investment vehicles to help you earn a return while ensuring liquidity. These portfolios are designed to meet your short-term financial needs (such as building an emergency fund or accumulating short-term savings) while keeping your money accessible when you need it.
Cash management portfolios typically offer higher yields and more liquidity than traditional savings accounts. However, like any investment product, they come with some level of risk, which varies depending on the type of funds they invest in.
What Do Cash Management Portfolios Invest In?
Cash management portfolios typically invest in low-risk, short-term instruments to balance safety with earning potential. These may include:
- Cash Funds: These funds generally invest in bank deposits and other very low-risk instruments such as Treasury bills. They are the safest and most liquid options, but offer minimal returns.
- Money Market Funds (MMFs): MMFs invest in high-quality short-term debt instruments, such as Treasury bills, commercial paper, and other highly liquid securities. While they are riskier than cash funds, they still provide a low-risk environment with higher returns. The average tenor of these instruments is 60 days.
- Short Duration Bond Funds: These funds invest in bonds with tenors lasting 1-3 years, offering higher returns than MMFs but with increased risk due to the longer duration of the bonds.
Differences Between Money Market Funds and Short-Duration Bond Funds
Here’s a side-by-side comparison of money market funds (MMFs) versus short-duration bond funds in terms of risks and returns:
| Aspect | Money Market Funds (MMFs) | Short Duration Bond Funds |
| Duration of Assets | Short-term (less than 1 year) | Longer (1-3 years) |
| Risk Level | Low | Higher due to duration and credit risks |
| Return Potential | Lower | Higher |
| Liquidity | Very high (T+0 – T+1) | Moderate (T+3 – T+10) |
| Example Investments | Treasury bills, commercial papers | Government bonds, corporate bonds |
| NAV Fluctuations | Very Low (relatively stable NAVs) | Low (fluctuates with underlying bond prices) |
| Suitable For | Savings for liquidity needs such as emergency funds | Short-term investments |
It is important to note that while cash management solutions with high allocations in short duration bond funds may offer higher yields, they also expose you to more risk, with fluctuating NAVs (influenced by interest rates) and longer duration of assets. An over reliance on bond funds can thus cause greater instability in a portfolio’s NAV, making it harder to offer instant liquidity to investors.
On the other hand, money market funds are ideal for low-risk, short-term investments. They see minimal fluctuations in NAV, which means their value remains relatively stable.
Is Your Cash Management Portfolio Risky?
The level of risk a cash management portfolio holds directly correlates with the types of funds it invests in. Factors influencing risk include:
- Asset Quality: The quality of the assets in the fund plays a huge role. For instance, a fund investing in bank deposits or government securities with A+ credit ratings is lower risk than one that invests in corporate bonds or junk bonds.
- Maturity of Assets: Shorter durations mean less time for adverse market conditions to impact the portfolio. MMFs invest in short-term instruments, while bond funds typically have longer durations, which introduces more risk.
- NAV Fluctuations: Funds that value their assets based on current market prices have fluctuating NAVs. When market conditions change, this can impact the value of your investment. Funds with stable NAVs, such as those used in Syfe’s Cash+ products, offer a more predictable investment experience.
What Does Syfe’s Cash+ Flexi (SGD) Invest In and How Do They Typically Perform?
As mentioned above, some investment platforms that promise higher returns than what the market offers may rely on short-term bond funds with slightly higher yields to keep up their promised returns. The trade-off is that these bond funds are exposed to greater risks on two fronts: changes in interest rates (interest rate risk) and potential defaults (credit risk).
At Syfe, we’ve designed our Cash+ products to strike a balance between safety, liquidity, and competitive returns. Our Cash+ Flexi (SGD) portfolio invests in money market funds that are higher quality and lower risk than bond funds.
Here’s a closer comparison of the underlying funds in Cash+ Flexi (SGD)—LionGlobal SGD Money Market Fund and LionGlobal SGD Enhanced Liquidity Fund—against two popular bond funds, United SGD Fund and Fullerton Short Term Interest Rate fund.
| Fund | Syfe Cash+ Flexi SGD underlying fund: LionGlobal SGD Money Market Fund Class CLASS A SGD (Acc) | Syfe Cash+ Flexi SGD underlying fund: LionGlobal SGD Enhanced Liquidity Fund Class SGD I ACC | Bond fund: United SGD Fund Class A SGD ACC | Bond fund: Fullerton Short Term Interest Rate fund Class R SGD ACC |
| Ticker | OCBSGDM SP Equity | LNWELIA SP Equity | OUBGPCI SP Equity | FULSTIS SP Equity |
| Credit Quality | A+ | A+ | A- | A |
| Duration (years) | 0.28 | 0.35 | 1.52 | 1.60 |
| 5-Year Annualised Returns | 2.09% | 2.27% | 1.83% | 1.65% |
| Maximum Weekly Drawdown | -0.02% | -0.10% | -4.40% | -6.73% |
| No. of Negative Weeks (Nov 2018 – Feb 2025) | 3 | 5 | 78 | 87 |
| Settlement Cycle | T+1 | T+1 | T+3 | T+2 |
Our Cash+ Flexi (SGD) portfolio has performed consistently well, offering attractive returns without exposing investors to the level of risk associated with longer-duration bond funds. The slightly lower annualised returns from Cash+ Flexi (SGD) is compensated by the higher credit quality of the money market funds we invest in, fewer negative weeks, and much lower maximum weekly drawdowns (-4% is a lot for a cash product, as in the case of bond funds).
We also ensure that your funds are accessible with shorter settlement cycles (you can receive your funds as early as the next day), as money market funds have shorter terms than bond funds and therefore higher liquidity.
With Cash+ Flexi (SGD), you get:
- Higher Quality Funds: Exposure to money market funds with A+ credit ratings
- Stability: Funds with lower risk, fewer negative weeks, lower weekly, drawdowns
- Diversification: A mix of government and corporate bonds reduces concentration risk and offers more stability.
- Liquidity: Shorter settlement cycle that allows you to access your funds faster.
In short, Cash+ Flexi (SGD) offers a safer alternative to bond funds and other high-interest products that may come with more volatility and higher risk. If you’re looking for a way to grow your savings with stable and higher returns, the Cash+ Flexi (SGD) portfolio could be a great fit.
Conclusion: Choosing the Right Cash Management Portfolio
While many cash management products offer attractive headline returns, it’s important to evaluate the underlying assets, risk level, and liquidity of each product before making an investment.
By focusing on stable and transparent returns, liquidity, and high-quality low-risk investments, Cash+ Flexi (SGD) provides a reliable and secure option for those looking to grow their cash without the added risk that more volatile solutions bring.
Sign up for Cash+ Flexi (SGD) today and start optimising your cash management strategy with Syfe’s expertly crafted portfolios.
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