Cash Management Trusts (CMT)
Quoting a financial dictionary, a Cash Management Trust is;
"A pooled investment vehicle for investors who would not individually have access to the professional money market".
Via the pooling of funds, the average investor then has access to the highly liquid, higher-yielding short-dated securities that provide higher returns than everyday bank accounts.
Cash Management Trusts vs Cash Management Accounts (CMA)
kshould not be confused with the cash management accounts (CMA) offered by major banks. A CMA has tiered rates of return dependent the balance of the account. For example, a balance of $100,000 attracts a higher rate of return (higher interest rate paid) than a balance of $10,000. While term deposits offer certainty of return, they tend to be inflexible.
Conversely, Cash Management Trusts can act virtually as an everyday bank account. Their attributes generally include:
- The ability to withdraw or deposit funds on 24 hours notice.
- Cheque book features
- Direct debit facility
- Debit or credit card options attached to the account
- Being considered as low risk
- Providing a higher return than a simple savings account.
All commercially marketed Cash Management Trusts compete fiercely on the interest rate returned to the investor. Be aware however that a higher interest rate Cash Management Trust may have qualities that make it less desirable. Many Cash Management Trusts impose a limited number of withdrawals, charge higher fees while some lock the funds away for a set time before money can be withdrawn.
As a rule of thumb, the higher the interest rate compared to the market level of other Cash Management Trusts, the less the flexibility of the Cash Management Trust.
Convenience
Convenience is the key for a Cash Management Trust as there are other low-risk investment vehicles for investing like direct fixed-interest investments. Apart from offering the diversity required in any balanced portfolio, when applied to a Self Managed Superannuation Fund (SMSF), a Cash Management trust also acts like a hub to all the other SMSF investments.
The CMT is a good vehicle to have "Cash on Hand" parked whilst waiting for an opportune time to enter into an investment offering a potentially higher rate of return. As with all financial products, the investor should read carefully any Financial service guide or Product disclosure Statement attached to the product. If in doubt then speak to a qualified adviser regarding your personal situation.
