Mutual Funds in Kenya 2020 (Best Performing Investments)

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Apart from insurance companies, which other firms do you know that invest in mutual funds in Kenya? Okay, This post is not an introduction to mutual funds

Mutual funds are a collective investment scheme made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets.

The schemes are managed by licensed fund managers and regulated by the Capital Markets Authority.

According to Investopedia, mutual funds are operated by professional money managers or financial institutions such as banks.

The money managers, allocate the funds investments and produce capital gains for the investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.

These funds require a minimal investment amount of KSH2,500 to an unspecified limit which the rates go higher depending on the financial providers you seek.

Types of Mutual Funds in Kenya

In Kenya, we have three major types of mutual funds which comprise of money market funds, dividend funds, balanced funds.

1. Money market funds

These are mutual funds that invest only in high liquidity instruments such as cash, cash equivalent securities and high credit rating debt-based securities with short term maturity of fewer than 13 months.

These investments include commercial paper, government securities and negotiated fixed and call deposits.

The funds offer high liquidity of between 4% and 10% annually depending on the fund manager with very minimal risks incurred.

Money market funds are naturally low risk and are best suited for accumulating savings for investments, emergency funds and other no monthly expenses such as insurance or school fees.

List of Mutual Funds in Kenya

  1. Cytonn Money Market Fund – CMMF by Cytonn Asset Managers Limited (CAML), the regulated affiliate of Cytonn Investments Management Plc. CMMF invests in high-quality interest-bearing investments, fixed deposits, and near cash holdings in the Kenyan market.
  2. CIC Money Market – The CIC Money Market fund is a low-risk fund which invests in diversified near cash, interest-bearing instruments in the Kenyan market.
  3. Zimele Market Fund – Zimele money market fund or Zimele savings plan is licenced and regulated by the Money markets Authority.
  4. Britam Money Market Fund – The Britam Money Market Fund, seeks to provide investors with a competitive interest rate and capital preservation in the short term

2. Dividend funds

Dividend funds are medium-risk investments with a moderate returns rate of about 12 to 15%. They are highly suited for medium-term savings and investments.

They comprise of government instruments, money markets, and commercial papers, publicly-traded stocks with a good record of paying dividends, money markets and moderate risk corporate bonds.

3. Balanced funds

These funds are a mix of both the money market and dividend funds in that, they invest in a mix of traded stocks and government bonds without necessarily investing in a pooled fund.

They operate as trading units and you invest by buying a unit in the fund and you realize the gains by selling them at a price that is higher than your buying price.

The price of the units solely depends on the performance of the balanced fund depending on the stock market.

Balanced funds are normally medium to high risk. there is an equal chance of making losses as well as reap highly from the investment.  The rates vary with stock markets but sometimes go as high as 20% per annum.

A balanced fund is ideal for long-term goals such as retirement investments, or long-term education investments.

See also: Unit trusts in Kenya

Benefits of Investing in Mutual Funds in Kenya

Risk diversification

Every stock is subject to three types of risks, for example, market risk, company risk, and sector risk.

Company risk and sector risk are unsystematic risks, while the market risk is known as a systematic risk this means, the stock price is not dependent on the market price the prices may fall if a  company performs poorly.

On the other hand, even if the company performs well, the stock price may still fall, if the market falls.

Mutual funds help investors diversify unsystematic risks by investing in a diversified portfolio of stocks across different sectors.

Smaller capital outlay

Investors require a large capital outlay to build a diversified portfolio of stocks.

Since mutual funds work on the basis of pooling of money, mutual fund investors can have the beneficial ownership of a diversified portfolio of stocks with a much smaller capital outlay.

Investment expertise

Investing in the stock market requires a lot of experience and expertise.

Mutual funds are managed by professional fund managers who have sufficient expertise and experience in picking the right stocks to get the best risk-adjusted returns.

Economies of scale in transaction costs

Since mutual funds buy and sell securities in large volumes, transaction costs on a per-unit basis are much lower than what retail investors may incur if they buy or sell shares through stockbrokers.

Variety of products

Mutual funds offer investors a variety of products to suit their risk profiles and investment objectives.

Apart from equity funds, there are also balanced funds, monthly income plans, income funds, and liquid funds to suit different investment requirements.

Variety of modes of investments

Mutual funds also offer investors flexibility in terms of modes of investment and withdrawal.

For instance, Investors can opt for different investment modes like systematic investment plans, systematic transfer plans, systematic withdrawal plans, switches from one scheme to another and many others.

Investors also have an option of mutual funds to take advantage of compounded returns over a long period of investment.

In Kenya, a number of financial institutions such as Britam, Stanlib, Zimele, UAP Old Mutual, Sanlam Investments Limited, CIC Insurance, ICEA LION among other insurance companies also deal with mutual funds.

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