Investing with money market funds in Kenya is growing in popularity as more people focus to diversify and tap into emerging investments options. This demand is causing an increase in the number of funds to satisfy the growing list of customers.
Although investing with money market funds in the country is increasing, the majority of Kenyans are yet to understand their benefits or even how they operate.
What is a money market fund?
A money market fund is a unit trust that invests in highly liquid investment assets mostly on a short-term basis. It targets investors with short-term investment targets and in need of exposure to a wide range of assets in the market. The majority of money market funds target to invest in assets such as;
- Treasury bonds
- Commercial paper
- Corporate bonds
- Fixed deposits
A common characteristic among these assets is that they are relatively safe and liquid.
- Government bonds
There are debt instruments the government uses to raise funds regularly. Mostly, the bonds are issued monthly and offer fixed and competitive returns. To learn more on government bonds, check my earlier article on How to Invest in Kenya Government Bonds.
- Commercial Paper
This is an instrument that commercial organizations use to raise short-term funds mainly to finance challenges in cash flow.
Commercial paper tenure is usually for less than one year. Due to the nature of this investment option., commercial papers tend to be riskier but also have better returns.
- Corporate bonds
These are instruments issued by various commercial entities in the Kenyan market to raise funds. Commercial enterprises issue bonds regularly through the capital market on the Nairobi securities exchange. Corporate bonds have a specific tenure and attract a fixed return.
- Fixed deposits
Fixed deposit is an investment option offered by financial options such as banks and SACCOs. It entails investing a certain amount of money for a specific amount of time to earn a specific amount of returns
The key advantage of fixed deposits is that they have low market risk and offer good returns.
Advantages of a money market fund
There are various benefits that investors get by investing in a money market fund. Some of these include
Money market funds allow investors to liquidate their investments within short notice as opposed to other long-term investment options.
This is good for investors with short-term investment goals or who may need to access their funds urgently.
These funds tend to invest in low-risk investment assets such as treasury bonds and fixed deposits making them a safer investment option for investors. As an example, the chances of a government defaulting remain minimal.
Money market funds offer regular returns monthly to the investors averaging 9-10% in returns. This makes investment in the fund lucrative and also encourages savings.
Due to the corporate nature of these funds, they tend to have a bigger bargaining power compared to individual investors helping them to get better return rates.
As an investor with a money market fund in Kenya, you enjoy the benefits of having a professional do the investment for you.
It also exposes you to more investment options that would require a lot of time as an individual to learn and master.
Challenges of Money market funds
The returns from money market funds could at times be lower than competing investment options such as hedge funds. Although the risk levels differ, low returns are not competitive making investors look for alternatives
Lack of Long-term investment opportunities
Money market funds target short-term investment options due to their business model. This makes them not ideal for long-term investors targeting illiquid investment assets.
Because most money market funds calculate returns daily, it tends to be inconsistent in the long term. This is different from other options such as fixed deposits and bonds that have a fixed return.
Inconsistent returns make it challenging for investors to make future planning.
How to Join a Market fund in Kenya
To invest in a money market fund, you need to open an account first. This requires you to provide some basic requirements such as;
- Account opening form
- Kenya Revenue Authority PIN
- Bank account
- Identity Card
Upon completion of the account opening process, you are now ready to start the investment process.
Each fund has its unique characteristic in how it operates such as the account opening fees, withdrawal fees, and notice duration.
Examples of Money Market funds in Kenya
Currently, there are various money market funds in Kenya. Below are some of the factors you should consider before settling on the right money market fund.
- Legal status
You should only invest with a money market fund that is operating legally. This helps to minimize the chances of loss that could arise from investing in a fund operating illegally.
As an investor, potential returns should be among the key factors to consider when making a money market fund choice. This you can get by doing market research and evaluating a fund’s past performance.
- Invest portfolio
A good fund balances its investments between different assets groups. This helps to reduce the risk exposure.
Diversifying the investment portfolio is a key strategy that helps to increase investor returns as well as ensure the funds are safe.
Some of the top money market funds in Kenya include;
- Cytonn Money Market Fund
- Britam Money Market Fund
- CIC Money Market Fund
- Sanlam Money Market Fund
- ICEA Money Market Fund
- NCBA Money Market Fund
These are just some of the money market funds in Kenya. The list continues to grow as more investors realize the benefits of investing in such a fund.
With money market funds in Kenya growing both in the customer base and asset base, they present an investment vehicle that is not only safe but also offers good returns.