You might have asked yourself this: What is the difference between a unit trust fund (UTF) and a money market fund (MMF)? The world of finance is a secret language mostly spoken majorly by the wealthy elite. Let’s change this!
Terms like “unit trust funds” and “money market funds” get thrown around, leaving many wondering: are these just fancy names for investment schemes you shouldn’t touch? This guide is here to crack the code and show you how UTF and MMF could be the key to unlocking your financial future. Dive in, and let’s rewrite the financial narrative together.
What to Choose: Unit Trust Investment Fund VS Money Market Fund in Kenya
Money market is a type of unit trust.
Do you need help in setting your investment portfolio? Reach out.
Now that that is out of the way, let us get to the juicy part of the artiles. A deep dive into the two investment funds.
What is a Unit Trust Investment Fund?
A UTF is a collective investment scheme that collects money from multiple investors and puts it into regenerative schemes. The structure of this fund begins with a fund manager at the top. They are in charge of the investment fund and settle most of the money making decisions. Another important entity is the custodian who keeps the funds safe and last but not least, trustees who ensure that the interests of every investor are taken care of.
It’s important to know that UTFs are not a one-size-fits-all scheme, just as investors come in all shapes and forms. UTFs bear various schemes that work to satisfy the needs of their investors. Let’s take a look at the different types of UTFs in Kenya.
Types of UTF
What distinguishes one UTF from another is in where and how your money is used and reimbursed back to you. To understand this, here are examples of Unit Trust funds:
- Money Market Fund:
- Bond Fund:
- Equity Fund:
- Balanced Fund:
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Money Market Fund:
These are funds that buy bank deposits, short-term treasury bills, and commercial papers, which are all types of short-term debt assets. The investments have low risk and are easy to sell. They are best for investors who don’t like taking risks and want stable funds with high interest rates.
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Bond Fund:
In these types of funds, short-term debt assets like treasury bills, treasury bonds, and corporate bonds are bought with the goal of getting a good interest rate and capital growth. The funds have a low level of risk and are good for investors who don’t like taking risks and want to make regular money from their investments.
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Equity Fund:
These are funds that buy shares in businesses, usually ones that are sold on the Nairobi Stock Exchange (NSE) stock market. The funds mostly put their money into stocks because they believe that over the medium to long term, they will give them better returns through capital growth or income payments. Since the funds are very volatile, they are best for buyers who are willing to take on a lot of risk.
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Balanced Fund:
The investments of these mutual funds are spread out among a variety of stocks and bonds. Such diversification helps protect against risk, so the fund is made for investors who want to put their money into a well-balanced portfolio that has exposure to all market areas.
As mentioned earlier, each scheme works for the better of its investor’s financial goal. If you are considering exploring any of these investment funds, I’d recommend sitting down with a financial planner best suited to guide you. On that note, I must confess that information is expensive in Kenya. Therefore, I’ll throw you an opportunity for a FREE consultation with an expert at your convenient time. Just click or tap HERE.
As a Kenyan, value over brand is a flag you fly higher than the national one. I would totally understand and that’s why I’m giving you a section full of green flags. Below are genuine reasons why you stand to benefit from investing in UTFs. Let’s dive in!
Advantages of investing in a UTF
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Professional fund management:
Unit trusts are run by professional fund managers who are accredited and evaluated every year to prove their credibility. As such these managers spend the money in a planned way instead of just putting it in whatever they feel like. A unit trust fund (UTF) will grant you the magical wish of using the knowledge of fund managers who know a lot about the market so that you don’t sweat the donkey’s work of calculating complex math. In addition, fund managers are obligated to constantly look for better investment options, which means more income for your pocket.
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Investment Security:
Since the personnel working behind the scenes are thoroughly scrutinized, you can rest assured that the fund and your money is safe. As a safety guarantee, every fund is required to have a trustee who is in charge of running the fund as a whole. Although there are risks with every investment, the Capital Markets Authority (CMA) makes sure that fund managers don’t take lethal risks with unit trusts.
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Attractive Returns:
Unit trusts are like gold whose glitter never ceases. These funds offer higher returns than most other investments or bank savings, and they have been shown to beat inflation over time.
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Investment Diversification:
UTFs make diversification by investing in a range of asset classes. This way, they give small buyers a way to get into a lot of different investments that they would normally have to have a lot of money to make. For example, investing in real estate (as we know it) requires you to purchase a property and resell it after appreciation, right? But the greatest obstacle many face with such ventures is the high acquisition capital. You are looking at approximately KES 2 Million, and this is if you’re lucky!
So what makes UTF a financially softer investment? Let’s take a look at a common real estate UTF in Kenya known as Vuka. With as little as KES 50 you can purchase a “unit” and own a portion of the whole real estate franchise. With time, you’ll be entitled to dividends just like any other investor in the scheme. That’s a sweet deal, don’t you agree?
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Liquidity:
The joy of sacrificing your resources in investment partly lies in the ease by which you can convert your assets to liquid cash. Unlike direct investments in company shares and sacco deposits, you can process a withdrawal from your UTF and receive the money in 2-4 business days and all you have to do is write an email. Or tap a button on an app. UTFs won’t bombard you with documents and guarantors just to receive your money. This is simply amazing.
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Access to many types of investments:
Unit Trust Funds give you access to investments that regular people can’t get, like government and business bonds, which are only available to institutions. In case you didn’t know, government bonds are tax free and they pay you a coupon after every 6 months. So, if you want to build a passive income through government bonds, here is what you need to do.
If you buy the bond in January, you’ll receive a coupon in August (thereabout) and the next coupon in January, of the next year. Am I making sense up to that point? Good. The catch then is to space out your purchases for the next multiple bonds in a way that delivers a coupon to you every single month.
What am I trying to say? Buy your next bond in February and receive a coupon in September (which is right after your first bond’s coupon) Repeat this until every month yields a coupon, or in other words, a passive income.
Best performing UTF over 10 years in Kenya
At this point if you are not considering purchasing a UTF then you might as well close this tab and watch some YouTube or Tiktok. However, if you are, then it is important that you are well guided and make informed decisions that are backed by numbers.
Below are a few UTFs that have withstood the test of time in Kenya. They are not the best funds available but they are the best place to start when digging your research. But hey, you can just click here and book a FREE consultation with our experts for an easier experience.
- Old Mutual
- NCBA
- Sanlam
- Schroder Unit Trusts Limited
Money Market Fund in Kenya
Buckle up, because we’re diving deep into Money Market Funds (MMFs)! We’ll break down exactly how MMFs work, why they might be the perfect fit for your short-term goals, and the untold secrets that you should know about any MMF before you start investing. Here we go!
How MMF works
MMF has a fund manager, similar to UTFs. These managers will collect money from you and invest it into 3 places:
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Treasury Bills
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Short Term Corporate Debt
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Fore Bank Deposits
These are liquid formats that work overtime so that you can enjoy passive income without lifting a finger. You should also know that MMF allows you to withdraw your money within 2-4 business days.
So, what is the magic behind a MMF? Well, these funds compound your returns on either daily or monthly basis, depending on the nature of your fund manager/company. The sweet spot about a compound interest is, time is your friend. The longer you can wait for your money to compound, the greater a return you’ll enjoy.
Let’s break down the math:
What MMF should I invest in?
Your choice in a MMF should be guided by the yielding interest rate. Now, there’s no MMF with a fixed interest rate, because these figures are always fluctuating on a daily basis. This is an inevitable occurrence because daily market conditions set the pace for the interests. On a good day, you’ll receive in between 7% – 10% as interest yields.
One important thing to note is that there is no big differentiation between one MMF and another, only because they operate within the same Kenyan market. The way Zimele would invest their portfolio is almost similar to how Britam would, save for nuanced tricks up their sleeves. That said, here are a few red flags to watch out when considering a MMF together with examples of MMF you can check out today:
Company Longevity:
- Why it matters: A company with a long track record demonstrates stability and experience in managing MMFs. They’ve likely weathered different economic climates, indicating their ability to navigate challenges and protect your investment.
- How to assess: Look for companies established for at least 10 years in the Kenyan financial market. Check their website for their history and experience managing MMFs.
Company-Customer Transparency:
- Why it matters: Transparency builds trust. You deserve clear information about your investment.
- What to look for:
- Interest rates: The MMF should clearly display current interest rates and their historical performance.
- Reports and fact sheets: Easily accessible reports detailing the fund’s performance, holdings, and fees should be available.
- Daily newspaper publications: While not as common anymore, some companies might use newspaper publications to announce significant changes or updates. Their website should be the primary source of information.
Inflation Rate to Yield Baseline:
- Why it matters: Your returns should ideally outpace inflation. If inflation is 5% and your MMF offers a 4% return, your purchasing power is actually decreasing slightly over time.
- How to assess: Look for MMFs with a historical yield that consistently surpasses the average Kenyan inflation rate. Most financial websites will provide historical inflation data for Kenya.
Public Customer Reviews:
- Why it matters: Customer reviews offer valuable insights into the real-life experience with the MMF and the company managing it.
- How to assess: Look for reviews on reputable financial websites, online forums, and the company’s social media pages. Be wary of overly promotional reviews, but consider recurring themes mentioned by multiple customers.
Ease of Cash Withdrawal:
- Why it matters: Accessibility to your money is crucial. An MMF is meant for easy access, so a smooth and efficient withdrawal process is essential.
- How to assess: Research the withdrawal process offered by the MMF. Look for clear information on the timeframe for accessing your funds (typically 2-4 business days) and any associated fees.
Responsive Customer Care:
- Why it matters: Having a reliable and helpful customer care team can be invaluable if you have questions or face any issues with your MMF.
- How to assess: Contact the MMF company’s customer care department directly. Evaluate their response time, professionalism, and ability to address your questions or concerns.
Examples of well performing Money Market Funds in Kenya
- Zimele
- Britam
- CIC
- Sanlam
- ICEA MMF
Are MMF safe?
Like any realistic investment, MMF has an element of risk. However, capital guarantee, a security that your fund manager sets in place to protect your money limits the fund to a low risk profile.
With this in place you are assured to always have your capital intact.
Nonetheless, MMF are not all pink and roses. One thing that affects your yield is the economic inflation. In certain cases you will find your yields either battling it out with the rate of inflation, or being swallowed by it. Remember, a low risk investment gives a low yield return.
Are MM dividends taxable?
Yes. Every coin and penny you make from a MMF is taxable. The government, through your fund manager, will charge you a 15% withholding tax on your interest income (not capital) and a 2% – 2.5% annual management fee on your overall investment portfolio.
Can a MMF lose value?
Yes. The inflation rate affecting your country’s economy can cause your MMF to lose value.
Why Buy A Unit Trust or Money Market Fund? (Benefits/Conclusion)
In case you skimmed through this article looking for the real juice, here is a summary of the benefits you’ll enjoy when investing in a MMF:
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Emergency Fund Account
By regularly depositing into your MMF, you’ll create a reservoir for your rainy days. Not only will you save the extra coin, but also have pockets deep enough for emergency needs like:Hospital Bills, Loss of income, or Delayed Rental Payment.
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Investment Parking Spots
A MMF will not deliver financial freedom to your doorstep. Not in one lifetime. However, it is your best chance to pave a strong path to the freedom you so desire. Look at it this way. You can open up a MMF with a goal to save up 500k for buying government bonds. At the end of your saving period, you’ll win both the capital you require and an added interest bonus. This is a more realistic approach towards attaining financial freedom.
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Liquidity
Liquidity basically means you can quickly convert your asset into usable cash. For example, a parcel of land is not highly liquid. This is because you’ll have to find a buyer, negotiate a price, process a number of documents, then accept payment.
A MMF on the other hand only requires you to shoot an email or tap a button to get your cash.
Investing in Unit Trust Funds and Money Market Funds in Kenya offers a structured approach to financial growth and security. Whether saving for short-term goals or building long-term wealth, these funds provide accessible, professionally managed options for all investors.
Dawit Insurance Agency has set aside resources to help you get started with these investments. Don’t shy away because you’re uncertain if this will work for you. In fact, we’re hoping that you are doubtful, because then we can start a journey of financial freedom together. All you have to do is click HERE and book a free consultation with our experts.
