Kenyans are rapidly embracing investing with money market funds to increase their passive income. This article will cover the step-by-step on how to invest with a money market fund in Kenya.
What is a money market fund?
Money Market Funds also known as MMFs are investment vehicles that invest in short-term and less risky assets. This makes these funds highly liquid enabling investors to access their funds on a short-term notice.
This is different from other investment assets such as saccos and shares that need longer notice to refund your funds. If you want to learn more about investing in saccos, here is my detailed review of the top 20 saccos to join in Kenya.
The fund is usually run by a fund manager known as a mutual fund. A fund manager invests in different assets and securities such as fixed deposits and government bonds. The returns made from these investments are then shared back to the investors.
Benefits of investing in a money market fund
There are several advantages you get by investing with a money market fund. Some of these include;
1. Liquidity
The highly liquid nature of money market funds makes it possible to access your funds on short notice. The reason for this is they invest in short-term assets and hence can liquidate them easily.
2. High-interest rates
The pooling of funds by a money market fund makes it possible to negotiate higher interest rates with financial institutions such as fixed deposit investments.
Such an advantage is transferred to the members as returns.
3. Regulation
Money market funds in Kenya are regulated by the Capital Markets Authority. Hence, this ensures your funds are safe as the fund manager operates within the laws.
Some of the regulating procedures include ensuring the risk levels are maintained and the fund manager is investing in the allowed assets.
Investing with a licensed MMF also makes it possible to seek legal redress in case of damages.
4. Low risk
Money market funds invest in less risky assets such as fixed deposits and government securities. Learn more on how to invest in Kenya government securities.
This ensures investors’ funds are highly secure with low chances of loss or negative returns.
How much money do you need to invest in a money market fund in Kenya?
The amount to invest with a money market fund differs from a specific fund. However, you can put in as low as 5,000 shillings. There is no limit to the upside. However, you can also reinvest your interest paid monthly to benefit from compounding.
If you put in money on a period basis such as monthly, it is easier to put in a standing order as it eliminates the inconveniences.
Most money market funds offer various ways to deposit funds making it convenient for the investors. Some of these include bank transfers and mobile money payments.
Money market funds return in Kenya
Different money market funds offer varying returns. However, the average return in the market is 10%.
Hence, it is prudent to join a fund offering higher returns to get maximum benefits. This should form part of your market research before settling on the right one.
However, some funds may offer returns of up to 13% while others may go as low as 5%. As part of your market research, ensure to do historical performance research.
MMFs pay their returns monthly. Hence, you can choose either to cash or reinvest.
How to join a money market fund in Kenya
Becoming an investor with a money market fund requires you to officially open an account and deposit your investment capital.
Below are the steps for investing in MMF.
Step 1: Select the right MMF after doing adequate market research.
Step 2: Fill in the application form. This will require you to provide details such as address, contact, and next of kin.
Step 3: Provide the relevant supporting documents such as national identity card and KRA pin
Step 4: Deposit the investment funds and start earning
Best Money Market Funds to Join in Kenya
There are various money market funds operating in the country. Below is a list of the top 5 in terms of their size, popularity, and returns.
· Sanlam Money Market Fund
This MMF allows you to start investing with as little as 2,500 shillings. It also allows subsequent top-ups by as little as 1,000 shillings.
Cytonn offers both KES and USD money market funds. They compound your returns daily and offer free registration.
It is also one of the top in the market in terms of returns and hence its popularity.
The CIC MMF requires you to have a minimum investment of 5,000 shillings and a minimum addition of 1,000 shillings.
Interest is compounded monthly.
NABO MMF offers both KES and USD options. The funds offer flexible cash deposit solutions and hence convenience to the investors.
Old Mutua MMF boasts investment in various assets such as treasury bills, fixed deposits, and corporate notes.
The fund pays returns monthly and allows you an option of compounding.
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