Money Market Fund Investment in Kenya

Would you like to set yourself up for financial freedom?

Every investor puts money to work expecting that the investment will generate an income in the future.

In this post, I expound on how you can make your money work for you by investing in a money market fund.

Did you know that your investment earns interest daily?

Let’s dive in and find out how.

What Are Money Market Funds?

Money market funds (MMF) are low-risk trusts that invest pooled funds in short-term investments.

MMF is run by licensed fund managers who pool funds from different investors and invest the funds in very conservative opportunities such as treasury bills, commercial papers, bank deposits, and corporate bonds, to name but a few.

The goal is to ensure your investment earns competitive returns at minimal risk.

Factors to Consider When Choosing a Money Market Fund

Before you invest in any MMF, take your time to research. There are other factors to consider than just who is offering the highest rate of returns.

Consider the following factors when choosing a money market fund.

1. Regulatory Body

Ensure the MMF is licensed and approved. The Capital Markets Authority of Kenya is the regulatory body responsible for licensing and monitoring the fund activities. It ensures the funds invested follow the set rules and guidelines.

2. Stability of the company

A company’s financial stability is a good indication that the people behind the fund understand how to manage investments.

It also means the company has been around for some time, managing funds safely to maintain a good reputation.

3. Transparency

Trust is earned when a fund manager keeps investors informed. At the end of each month, investors receive a statement showing how the investment is performing.

Disclosure of information such as the fund’s rate of return and where investors’ funds are invested is an indicator that the fund manager is transparent.

Investors and potential investors can access the fund performance report through regular fact sheets or tear sheets.

For example, Sanlam Money Market Fund shares its fact sheet on its website.

4. Investment Fees

Usually, the fees charged by fund managers range from 1 percent to 3 percent.

It’s advisable to learn whether the rate is net of all fees.

At this point, it’s important to note that every single interest-earning opportunity in Kenya is subject to a withholding tax of 15 percent of the interest that you earn.

Choose the fund that charges the minimum fees.

5. Returns

Most upcoming money market funds in Kenya tend to offer higher returns to attract new investors.

If the average market rate of a MMF is at 10 percent and a company promises to offer returns at 20 percent, then there is a problem. Where are they investing their money to get such high returns?

As an investor, you should know the higher the return, the higher the expected risk that you’re taking. Therefore, go for funds that have consistency in terms of returns.

Be careful when it comes to your hard-earned money. Learn how you can spot an investment scam.

Benefits of Investing in Money Market Fund

1. Ease of Investment

You can start investing in MMF with as low as Ksh. 500. The minimum investment amount varies depending on the company.

Also, with the advancement in technology in financial services, you can send your investment with just a click of a button. Mobile banking allows transactions at your convenience. Therefore, you no longer need to queue.

2. Liquidity

In Kenya, you can withdraw your investment within three working days. Just write an email to your fund manager. Within three working days, you will receive your money through your bank account.

What makes money market funds favorable is that you can either withdraw part of the money or the total amount inclusive of all the accrued interests.

There are no fees charged for withdrawing nor are there initial fees charged on MMF.

3. Attractive Returns

The average rate of return in Kenya ranges from 8 percent to 10 percent per annum.

Compared to treasury bills or fixed deposit saving accounts, money market funds offer attractive returns.

In March 2022, the 91-day Treasury bill rate in Kenya is at 7.265%

Fund managers must consistently bargain for better returns on investments to ensure the investors earn competitive returns.

4. Preservation of Capital

MMF is conservative. It’s a low-risk investment for people with a low-risk appetite who can’t afford to lose their investment.

The fund allows you to invest your money and earn returns as you figure out the best investment to venture into

5. Diversification

Fund manager allocates assets in diverse investments such as tier 1 banks and treasury bills to mitigate market risks.

In Kenya, fund managers are not allowed by law to invest more than 25 percent of their money in one single bank.

6. Security

A custody bank holds investments on behalf of the investor so they are safe and cannot be misused.

Preferably, a Tier 1 bank as a custodian will add a further layer of security to your investment.

How to Invest in Money Market Funds in Kenya

Now that you understand what a money market fund is all about, the factors to consider, and the benefits of investing in one, you are ready to invest.

The following documents are mandatory to open a money market fund account in Kenya.

Duly completed application form
Copy of National ID or Passport
Copy of KRA Pin Certificate
Bank details (copy of bank statement)
Passport size photo

Depending on the company, there may be other requirements like a duly completed risk assessment form and a copy of utility bills.

Once you provide all the necessary documents, your account will be created and a member number allocated to you.

Is Your Money Earning an Interest?

Money should never lie idle!

Do not keep your money in an account that is not earning any interest.

Many Kenyans have money in a current or salary account because it gives them a sense of security. These accounts lose money because of charges such as ledger fees.

Ultimately, with the right investment strategy, money market funds in Kenya can be your road map to financial independence.