Over the years, Money Market Funds have earned a well-deserved reputation for being one of the safest financial products, offering less risk exposure to the investor but higher returns than savings deposits. As one of the most conservative investment products, it is therefore quite difficult to understand why those constructing the FTT have singled out MMFs as being the product set to be worst hit by the new tax (50 basis points for MMFs domiciled in the FTT zone and 23 bps for those outside).
The illogical trend doesn’t stop with MMFs. When analyzing the annual cost in basis points by financial product, a distinct trend emerges: the number of basis points is inversely proportional to the size of the risk. Private equity funds are at the bottom of the table, although they are often a riskier form of investment.
This all begs the question: what exactly do those promoting the FTT wish to achieve? Having widely diverged from their original aim of creating a disincentive to investors involved in riskier dealings, FTT zone countries have left those not at the negotiating table scratching their heads over the missing logic.