I receive this question from my clients every other day and am glad to discuss MMF today. We shall see its importance and superiority compared to other forms of investment. By the time you finish reading today, your eyes will be wide open and you’ll know what to expect. There are no shortcuts to getting rich, it’s all about consistency, understanding products available in the market, working with a great investment expert, and having clear financial goals so that you are able to focus on investments that match your financial plans.

Due to the rising instability in the economy like the COVID-19 Pandemic and political uncertainty, most investors are focusing on investments that provide preservation of their capital, such as fixed bank deposits, low-risk bonds, SACCOS, Plots, or Money Market Funds. These provide safety for their investments in comparison to the fluctuating securities markets and provide a potential stable rate of return.

So what is a Money Market Fund? It is a form of Unit Trust Investments whose aim is to deliver interest beyond the existing inflation rates.

What is a Unit Trust?

It is a Collective Investment Plan (CIS) that Pools funds from investors and invests in various investment instruments available in the market. Pooling funds is when more than one person contributes money to invest as a group. The pooling is done by Fund Managers e.g. Insurance companies in Kenya. The pool is split into equal parts called Units. Each Unit has a Price based on the value of the total assets placed in the fund.

Where MMF do invests?

MMF invests in interest generating instruments such as:-

  •  Treasury bills
  •  Bank fixed deposits
  • short term bonds
  • Commercial paper
  • Treasury bills
  • Others high interest generating investments.

Who are the parties involved in the MMF in Kenya?

Unit Holders/Investor– That is you, who is contributing your funds to the collective investment fund

Fund Manager– The Company collecting, managing, and investing the funds e.g. Insurance companies

Custodian– The bank approved by Capital Markets Authority (CMA) that holds the funds from MMF

Trustee– Protects the interests of the investors at all times

Regulator– Capital Markets Authority (CMA) Ensure integrity and supervise MMF

Auditor– Analyses the Fund Manager’s financial statements.

So what makes MMF the go-to Unit Trust Fund for most Kenyans? 

(There are other types of Unit Trust Funds in Kenya, we shall discuss them later on this page)

Very Affordable

You can invest from as little as Kshs.1, 000/-. The interest rates of your investment accrue daily and are compounded monthly.

Attractive interest rates

Most fund managers offer gains on capital at a rate of 8% to 10% Per Annum.

This is relatively high considering that your capital is preserved.

Easy Access of your funds/Liquidity

MMF is highly liquid, it’s just like having your cash in a bank account that is accessible within 24 hrs-48hrs. Most Fund Managers allow you to withdraw your funds online at any time of day. Online accessibility allows you to check your balance and interest generated anytime at no cost.

Regulated Fund

MMF is regulated and supervised by the Capital Markets Authority. This ensures that your funds are safe and protected.

Low risk

The fund protects your capital, meaning you can never lose the original amount you invested. The interest rates may vary depending on the market performance but the capital invested is safe and remains unchanged. Also, Pooling of funds allows you to access a variety of funds that may not be accessed individually. The funds are invested in a variety of short-term Low risk – High returns investments instruments. This diverseness of the portfolio minimizes the risks you would experience if you directed your investments into only one category of assets.

 Easy to invest

The process of investing is easy with minimal requirements. To sign up, most companies will ask you to provide:-

  • A completed MMF application form
  • A copy of your ID & KRA PIN certificate
  • Your bank details
  • Your Passport ( Not a must)
  • 1ST Installment – can be made via bank or using mobile money platforms

Easy savings plan

You can deposit funds any day, anytime, and use the platform to save for your short-term or long-term goals such as buying a new car, vacation, school fees even retirement. The online access to your account allows you to track your progress and stretch your savings speed.

Qualified Experts

The fund managers hire qualified investments analysts who provide you with all the necessary advice you may require.

I am sure you want to be a great investor and build wealth consistently, a MMF may be a good place to start and see how it goes. In case you want to invest in other forms of Unit Trust Funds. You could try:-

  1. Bond Fund The funds are invested in bonds that may offer regular income, the interests yield depend on the market forces meaning you could gain or lose on your capital.
  2. Balanced/Growth Fund– Mainly invests in companies listed on the Nairobi Securities Exchange (NSE) and other short-term instruments such as Bonds and fixed deposits. It gives you liquidity and allows you to grow your capital
  3. Equity Fund– Mainly invests in companies listed in NSE and does not guarantee the preservation of capital since the gains are dependent on market forces. You could try them when looking to grow your capital in the long term.

 What costs will you incur investing in MMF?

There are various costs that you will incur when investing:-

  1. With-holding tax-Please note most Fund managers will quote their interest rates before withholding tax. Off course they know it’s a good sales strategy that will excite potential investors like you. Your gains on capital will be taxed at a rate of 15% meaning you will receive 85% of the total earnings.
  2. Management fee– The fund managers will charge an average of 1.5% per annum of the capital to manage your funds. Off course you didn’t think they manage and invest your funds for free, they are in business too.
  3. Withdrawal fees– There are withdrawal costs charged, usually, it’s a small flat rate while some Fund managers will charge zero withdrawal costs.

Have you tried investing in Money Market Fund or any other Unit Trust Fund? What was your experience? I’d love to hear.