Returns decline, fee rates jump, scale increases—where is the aroma of money market funds "hovering around the 1% edge"?

“Used to put my money in Yu’e Bao, and I could earn enough for a cup of milk tea every day. Now, the returns are getting smaller and smaller, and even the fee rates are starting to ‘fluctuate wildly’.” This complaint from Xiaoxia, a 90s white-collar worker in Shenzhen, reflects the sentiments of many current money fund investors.

Recently, as the 7-day annualized yield of money funds continues to fluctuate downward, a hidden “automatic adjustment” clause in the fund contract has been triggered repeatedly. Several money funds have hit their yield thresholds, automatically triggering temporary management fee reductions. When yields slightly rebounded, the fees were restored, with some products even cycling between “fee reduction one day, fee restoration the next.”

Over a longer period, this kind of “fee rate rollercoaster” has become frequent. Even as the 7-day annualized yield approaches the “1% level,” over a hundred money funds have fallen below 1%. Yet, the total scale has defied the trend and surpassed 15.27 trillion yuan, reaching a new record high. As the appeal of “baby-type” financial products diminishes, why are funds not pulling out but instead flowing in?

The “rollercoaster” of money fund fee rates is accelerating

On March 11, Anxin Fund announced that its Anxin Tianli Bao money fund had reduced fees due to a contractual fee reduction clause, lowering the management fee from 0.9% to 0.3% starting March 9. On the same day, several other money funds, including Changsheng Yuan Zengli, GF Cash Increment, and Shenwan Lingxin Tian Tian Li, also announced similar fee reductions.

According to the announcements, these fee adjustments were not voluntary concessions by public fund managers but were strictly executed according to the “dynamic adjustment mechanism” stipulated in the fund contracts. For example, for Anxin Tianli Bao Money Fund, when the estimated 7-day annualized yield calculated with a 0.9% management fee is less than or equal to twice the current deposit rate, the management fee will be adjusted to 0.3% to reduce the risk of negative estimated net income per ten thousand units and avoid overdraft risks for sales agencies. The fee will only revert to 0.9% once these risks are eliminated.

For instance, Guangda Yangguang Cash Bao announced that due to the above situation on March 10, the management fee was adjusted to 0.25%. Just one day later, on March 11, the fee was restored to 0.9% after the risk was eliminated. Historical announcements show that this cycle of “lowering, restoring, lowering” fees has occurred multiple times.

First Financial notes that such “automatic adjustment” cases are not rare. According to incomplete statistics, as of March 11, more than 270 announcements about fee adjustments for money funds have been made this year, with 42 just since the beginning of March. Products like CITIC Jianqian Hui Jin, Penghua Cash Increment, and others have also experienced similar dynamic fee adjustments.

Further analysis shows that most of these adjustments are concentrated in money funds that have transitioned from asset management collective products, which generally set floating fee rules and have relatively high management fees. For example, on March 10, products like Zhongtai Jinqian Huijin, CICC Jujinli, and Shenwan Lingxin Tiantian Zeng all maintained a management fee of 0.9%.

“Most of these products are ‘legacy’ products, previously serving brokerage clients and not fully aligned with the current mainstream fee levels of public sector money funds,” said a person from a public fund product department familiar with such products. Although current performance suggests that continuing with the original fee structure is not very reasonable, there are no immediate plans for active adjustments.

In fact, the frequent triggering of the dynamic fee mechanism reflects the ongoing low yields of money funds. Wind data shows that as of March 11, among 948 money funds with available data, the average 7-day annualized yield has fallen below 1.2%, down 0.22 percentage points from 1.416% a year ago. Compared to the same period in 2024 at 1.98%, the decline is even more significant.

Looking at specific products, only Yinhua Shuangxi Zengli has a 7-day annualized yield exceeding 2%, reaching 2.092%. Last year, seven products exceeded 2%, with the highest reaching 3.53%. Alarmingly, 113 money funds now have a 7-day annualized yield below 1%, more than doubling the 35 such funds last year.

As the largest domestic money fund, Tianhong Yu’e Bao’s yield performance has attracted much attention. Its latest 7-day annualized yield has fallen to 1.001%, just a step away from dropping below 1%. Wind data shows that at the end of last year, Tianhong Yu’e Bao’s fund size exceeded 764.6 billion yuan, with the highest 7-day annualized yield reaching 6.763% since inception.

Despite low yields, why aren’t funds “moving” out?

Although yields are declining, the total scale of money funds is actually increasing, reaching new highs. According to the China Securities Investment Fund Industry Association, as of the end of January, the total scale of money funds exceeded 15.27 trillion yuan, accounting for 40.44% of the entire market. In just one month, the scale increased by 237.9 billion yuan.

In terms of investor structure and growth, the top ten money funds by annual scale increase last year (including different share classes) contributed about 583 billion yuan, roughly 35.5% of the total growth of money funds that year. Data from these funds’ mid-year reports show that eight of them have over 90% individual investors, highlighting a strong preference among retail investors.

With “breaking 1%” and fee adjustments becoming routine, why haven’t funds experienced a large-scale “migration”?

Industry insiders believe that under the combined effects of declining interest rates and the maturity of fixed-term deposits, household asset allocation is undergoing a historic shift. In this context, cash management tools are increasingly valuable. “These products, with their high liquidity and low volatility, have become important vehicles for short-term fund management,” said a public fund analyst in South China.

“From market practice, money market funds and other cash management tools are currently key options for ‘deposit migration’,” he added. For funds that require both “easy access” and relatively stable net asset values, money market funds remain the main vehicle.

He explained that money market funds serve as a core allocation choice for conservative investors and an important means of institutional liquidity management. They help investors maintain flexibility while earning returns higher than current deposits, and also provide optimized management solutions for daily expenses and emergency funds.

A senior executive from a leading fund company shared a similar view, stating that although yields continue to decline and the advantage over bank savings has weakened, the core attributes of money funds as cash management tools remain unchanged. Therefore, future growth in money fund scale may slow but will likely stay at a low level.

“Whether individual or institutional, the demand for liquidity management won’t disappear. Money funds still have value,” said a fixed income fund manager. Funds linked with payment functions on online platforms or with broker margin functions have specific application scenarios. Their high liquidity and low yield volatility still make them attractive to individual investors.

Regarding whether money fund yields will continue to fall, industry consensus remains cautious.

“In response to market changes, fund companies can only optimize investment operations—by extending durations, adjusting asset structures, and maintaining compliance and liquidity—to try to boost returns,” said a fund channel professional in Shanghai. He added that fund companies need to deepen their market-based strategies to enhance user stickiness and fund retention. If clients demand higher yields, they might be recommended short-term bond funds or industry deposit index funds with more attractive returns.

“Measures like purchase restrictions, dynamic fee reductions, and product innovation are all strategies fund companies use to cope with declining yields,” the senior executive from a top fund firm concluded. On one hand, they can increase yields by shortening durations, reducing bond holdings, increasing deposits, and flexibly using leverage and repo assets; on the other hand, they can create hybrid products combining money funds and short-term bonds, maintaining liquidity advantages while exploring yield enhancement opportunities.