A cash plus fund is a low risk investment portfolio that provides investors with a high degree of liquidity. The term "cash plus fund" is most commonly used in Australia, New Zealand, and South Africa although similar types of conservative funds are commonly available in other nations. Cash plus funds are best suited to conservative investors and people with a short-term investment time horizon.
While the make-up of cash plus funds varies between investment firms, a cash plus fund typically contains a certain amount of cash or cash equivalent securities. Funds normally contain cash securities that are denominated in the domestic currency. Short-term national government debt securities are regarded as cash equivalents as are some certificates of deposit (CDs) issued by major banks. In addition to holding these securities, cash plus funds usually contain shares of money market mutual funds which are comprised of cash equivalent securities.
Aside from money market shares and cash securities, these funds also contain debt securities such as bonds. Generally, funds only contain bonds that were issued by domestic based government agencies or corporations. The majority of the bonds have a yield of six months or less although some funds include bonds with a duration of a year or more. Bond yields are set at auction and investors demand higher payments for long-term bonds because the issuers have more opportunity to default. Therefore, the bonds in cash plus funds pay very little interest when compared with 10 or 20-year bonds.
Over the long-term, someone investing in a cash plus fund has to contend with the risk that inflation will outpace the yield on the bond fund. Due to this risk, these funds are suited to people who are more concerned with preserving capital than creating growth. Some investors also use cash plus funds to generate supplemental income although other types of funds containing dividend paying stocks and longer-term bonds provide investors with greater monthly yields.
As with any type of investment fund, a cash plus fund must have a clear investment strategy, and this must be detailed in the fund prospectus and in marketing materials. The fund's day-to-day operations are presided over by a fund manager who decides which securities to buy and when to sell the fund's existing holdings. Despite having a degree of autonomy, the fund manager cannot use the fund's assets to buy a type of security that does not tie in with the fund's stated investment strategy. Generally, cash plus funds are open-ended funds which means that investors can redeem their shares at any time.