Cash funds aim to be low risk and highly liquid—but their net asset values (NAV) can still have marginal fluctuations daily. This guide explains the fluctuations, using Singapore Treasury bills (T bills) and MAS Bills as the key examples.
________________________________________
What is NAV?
NAV is the price per unit of a fund. It’s calculated by taking the market value of all the fund’s holdings, adding accrued income (like the yield earned each day), subtracting expenses and liabilities, and dividing by the number of units outstanding. Because the underlying holdings are valued daily, the NAV can move slightly from one day to the next.
________________________________________
Inherent Characteristics of Singapore Government Bills: T Bills and MAS Bills
• T bills
Government securities, typically have tenors of 6 months or 1 year. They are issued at a discount and redeemed at 100 (par) at maturity. They do not pay coupons; the return is the difference between the discounted purchase price and par at maturity.
• MAS Bills
Short term bills issued by the Monetary Authority of Singapore to help manage banking system liquidity. Like T bills, they are issued at a discount and mature at par. MAS Bills are mainly accessible to banks and institutional investors; like cash or money market funds
Both instruments can be traded in the secondary market, so their prices may fluctuate daily based on market changes in interest rate expectations and liquidity. Singapore has AAA ratings and hence the bills typically have lower-price volatility.
________________________________________
Fundamentals of Mark to Market (MTM)
Mark to market means valuing a security at today’s market price, not the price you paid. It answers the simple question: “If the holding is sold today, what would the market pay?”
• When market interest rates rise, prices of existing Singapore government Bills tend to decline and vice versa
________________________________________
Why a cash fund’s NAV moves
A cash fund’s NAV reflects two moving parts that work together:
• Daily income accrual
Short term holdings (Singapore government bills) earn yield daily. That income accrues into the NAV over time.
• Daily mark to market
As rates and liquidity shift, the market values of the holdings fluctuate. This MTM effect is typically modest because the holdings are short term, but it can offset or add to the day’s accrued income.
The combination of “accrued yield” and “mark to market holdings” explains why NAVs can move slightly around a steady upward trend driven by income.
________________________________________
A simple example
Imagine a 6-month T bill in the fund:
• Purchase price: S$97.00 (will redeem at S$100.00 in 6 months)
• One week later, if market yields fall, the Singapore government bills’ current market value may rise to $97.10.
• But if market yields rise, the market value may tick-down to S$96.90.
These moves are unrealized gains or losses unless the fund transacts at those prices. If the T bill is held to maturity, it redeems at S$100.00, and the fund earns the intended return from discount to par. Meanwhile, the fund’s NAV will reflect daily income accrual plus marginal MTM moves along the way.
________________________________________
What this means for you
• Marginal fluctuations for the interim
Marginal NAV changes are expected. They arise from regular mark to market updates and are typically modest because the fund invests in short-dated, high-quality instruments.
• Return comes from yield over time
Most of your cash fund’s return is from the ongoing yield accrued from the underlying holdings earned each day.
• Holding period matters for unitholders
The bills are expected to be redeemed at par when held to maturity.
• Liquidity and stability
Cash funds seek to provide daily liquidity and capital stability, but the NAV is not guaranteed to be positive daily. Marginal moves around the steady accrual of income are normal. The bills that are held to maturity, generally matures within months.
________________________________________
A note on why some other MMF NAVs may appear more stable
Within the Singapore market, different money market funds adopt different valuation methodologies. Some funds value certain short-term bill holdings using amortisation (accreting the discount steadily to par) rather than marking them to daily market prices. Under an amortisation approach, the value of these instruments moves in a smooth, linear path toward maturity, which can result in a more stable-looking NAV with fewer visible day-to-day fluctuations.
Funds that apply mark-to-market (MTM)valuation, by contrast, reflect daily market movements in T bills, MAS Bills, and other short-term instruments. These price updates may introduce marginal NAV variations even though the underlying risk profile remains low and fairly valued for all unitholders
There are MMF products in the Singapore landscape that may appear to have less NAV movement due to the use of amortisation valuation. The key point is that valuation methodology (MTM vs amortisation), together with differences in holdings, can lead to different NAV patterns, even among broadly similar low-risk money market strategies and might not be a fair reflection of MTM of the securities, especially during event risk
________________________________________
Frequently asked questions
• “If the NAV dips a little, did I lose money?”
Not necessarily. Marginal NAV dips usually reflect temporary market pricing of bills. Your long-term outcome depends on the yield earned from underlying holdings and how long you remain invested.
• “Can NAV go higher and lower on consecutive days?”
Yes. As interest rate expectations evolve, MTM may offset the day’s income accrual.
• “What about MAS Bills specifically?”
Retail investors are unable to access MAS Bills directly, but your cash or money market fund may hold them. Their MTM behavior is similar to T bills and is reflected in your fund’s daily NAV
Disclaimer: No offer or invitation is considered to be made if such offer is not authorised or permitted. This is not the basis for any contract to deal in any security or instrument, or for Fullerton Fund Management Company Ltd (UEN: 200312672W) (“Fullerton”) or its affiliates to enter into or arrange any type of transaction. Any investments made are not obligations of, deposits in, or guaranteed by Fullerton. The information contained herein has been obtained from sources believed to be reliable but has not been independently verified, although Fullerton believes it to be fair and not misleading. Such information is solely indicative and may be subject to modification from time to time. The contents herein may be amended without notice. Fullerton, its affiliates and their directors and employees, do not accept any liability from the use of this publication.