Liquidity Fund

Investment - bond funds - risk management - interest rate risk - duration.

A liquidity fund means a fund that seeks to generate income by investing in a portfolio of short-term obligations in order to maintain a stable net asset value per unit or minimise principal volatility for investors.

Liquidity Funds and Ultra short duration bond funds (USBFs) compared

1. USBFs can invest in longer maturity securities, typically out to three years, and have longer average maturities.
2. Exposure to low-quality investment-grade credit is probable, along with an overall greater exposure to credit reflected in a longer weighted average life.
3. USBFs are bond funds that when seeking a fund rating will be assigned a bond fund rating. While the same designation (AAA, AA, A) is used for both bond funds and MMFs, it is important for an investor not to assume this means the same level of risk.
4. USBFs are variable net asset value (VNAV), hence influenced by mark-to-market prices creating an element of price volatility.
5. Same-day settlement is not a feature of an USBF, with typical settlement periods of two days or longer.
6. The investment horizon is longer for USBFs and not intended for daily cash flows.
7. USBFs do not typically meet the IAS7 accounting definitions for cash and cash equivalents.

Ultra Short Duration Bond Funds: Seeking the right balance between risk and return - ACT Knowledge Hub.

See also

• Cash and cash equivalents
• Constant net asset value (CNAV)
• Credit risk
• Duration
• Fixed income
• Fund
• IAS 7
• Interest rate risk
• Investment grade
• Investment horizon
• Liquidity
• Macaulay duration
• Maturity
• Money market fund (MMF)
• Modified duration
• Net asset value (NAV)
• Portfolio
• Principal
• Risk management
• Security
• Short
• Short term
• Short duration
• Short Duration Fixed Income Bond Fund
• Ultra short duration bond fund (USBF)
• Variable net asset value (VNAV)
• Volatility
• Weighted Average Life (WAL)
• Weighted average maturity (WAM)

Other resource

Ultra Short Duration Bond Funds: Seeking the right balance between risk and return - ACT Knowledge Hub