In the financial landscape of Kenya, the charm of money
market funds (MMFs) has grown remarkably. These funds have become a hope for
investors, ranging from individuals seeking a haven for their hard-earned
savings to corporations eyeing stable yet fruitful investment avenues. But what
exactly are these money market funds, and why have they become such a cornerstone
in the Kenyan financial environment?
At their core, MMFs are investment vehicles that offer both
the flexibility of a savings account and the higher yield of an investment
fund. They are designed to provide a safe platform for managing short-term
liquidity needs while also offering the potential for higher returns compared
to traditional savings accounts. What makes them particularly attractive in the
Kenyan context is their ability to blend security with profitability, a
combination that's highly sought after in the face of fluctuating economic
conditions. These funds typically invest in short-term debt securities,
including treasury bills and commercial paper, making them an appealing option
for risk-averse investors who are still looking for reasonable returns.
The intrigue surrounding MMFs in Kenya goes beyond just
their investment structure. These funds have become an integral part of the
financial planning landscape for many Kenyans, aiding in achieving various
financial goals such as building emergency funds, planning for education,
preparing for significant life events like weddings, or even larger projects
like home purchases. The versatility of MMFs in meeting diverse financial needs
while offering the comfort of liquidity and lower risk profiles makes them a
standout choice for a broad spectrum of investors.
As we delve deeper into the top 20 money market funds in
Kenya, it's crucial to understand not just the mechanics of these
funds but also the rationale behind their growing popularity. In a world where
financial security and growth are paramount, MMFs in Kenya present a compelling
case for both seasoned and novice investors alike.
Understanding Money Market Funds in Kenya
In Kenya, Money
Market Funds (MMFs) have carved out a niche as a pragmatic and
reliable investment choice, especially for those aiming to balance risk and
return efficiently. Let's dive into the essentials of MMFs and examine why they
have become a go-to financial tool for many Kenyans.
Definition and Nature of Money Market Funds
MMFs are a type of mutual fund that specializes in investing
in short-term debt securities. These securities include treasury bills,
commercial paper, and certificates of deposit. The primary aim of MMFs is to
provide investors with a safe place to invest easily accessible, liquid cash
equivalents while earning a return that typically exceeds traditional savings
accounts. In Kenya, MMFs have emerged as popular due to their higher yield potential
and low-risk profile, which is particularly appealing in the fluctuating
economic environment.
What sets MMFs apart in the Kenyan market is their focus on
capital preservation and liquidity. They are designed to maintain a stable net
asset value (NAV), usually at Ksh 100 per share, making them a less volatile
investment option compared to stocks or long-term bond funds. This stability is
crucial for investors who need quick access to their funds or who are
risk-averse.
How to choose the best Money Market Fund in Kenya
There is a set out criteria you can use to determine the
best one for you based on your needs. Among the factors to
consider include return on investment, minimum investment of each and
liquidity. Based on these, here are some suggestions.
Interest
The MMF
fund manager with the highest interest rate currently is Cytonn’s
Money Market at an average annual rate of 10.6%. The other fund
managers that come close in terms of high returns include Zimele
MMF, Nabo Africa MMF, Apollo MMF and Sanlam with an average of above
9% interest annually.
Popularity & Market Share
CIC MMF has the highest market share compared to
other fund managers. It is very popular because it attracts a relatively higher
yield compared to other money market
funds. Another contributing factor is it has been
present in the market for long with the company investing
in effective marketing of the product.
Liquidity
Any fund manager that is a bank, has a higher turn
around time in terms of withdrawal. Case in point, NCBA; when you
issue your instructions before 10am, your money reflects in your account
on the same day by 4pm.
If your fund manager is an insurance firm on the other hand,
the turn around time for withdrawal takes longer. Case in point is CIC money
market. When you place your instructions and they are processed, you need to
wait 2 to 4 working days for you to receive money in your bank
account. This is because the insurance firms are not the
custodians whereas banks are.
Management Fee
All fund managers have a management fee ranging
from 1.2% of interest to 2%. The fund manager that charges the least
management fee is Sanlam at 1.2%. Most of the others have a
management fee of 2%.
Initial Deposit
This is the minimum deposit required for every MMF. It
differs from one fund manager to another. The one that requires the
least initial capital is Zimele at KES 100. Others charge as much as KES 2,000,
or KES 5,000.
Why Choose MMFs? Benefits and Risks
Advantages of Money Markets
Simple and easy product to invest in
This is as easy as
ABCD. Second to a savings account, this is one of the most accessible
products in the market. People can invest with as little as KES 100. Based
on the money market you pick; you can also keep topping up using a pay bill
number which is accessible using your phone or through USSD code. It is so
simple to open a money market and the whole process can be done in under
10 minutes. You only need to fill a form, give a copy of your ID and a
passport picture and you are good to go.
It is a passive income
Money market is one
the best passive income product you can have. This means you earn money without
necessarily having to do anything. There are skilled people who
invest on your behalf who have expertise in the market, so you
do not need to worry. You also get updated on a daily on the interest rates and
monthly on how your investment is doing.
If you have KES
1,000,000 in money market, you are likely to attract an interest of KES
100,000 (gross) if the interest is about 10% a year. If you invest in
10,000,00, you will get approximately KES 1,000,000 per year, same
interest. This is significant cash given your capital will still be intact
and you have not done the heavy lifting. The same may not be said about
investing in businesses because you may lose part of your initial capital or
take more than a year to even break even.
Remember in money
market, the more money you invest, the more you get in interest. Most
institutions invest their money in MMF and they form a bigger percentage
of investors.
Low risk investment and preservation of capital
Compared to so many
products, money market is one of the low-risk investment in the
market. As an investor you are guaranteed of your principal and
you do not lose it under any circumstances. This is a great product
for risk averse investors.
Regulation
If you want
guarantee on safety, you need to invest in a product that is
regulated like MMF. Most products in Kenya are regulated by the Capital
Markets Authority. This means that CMA has oversight on the
product and in most cases guide on how the trustees can invest in your money.
The main purpose of regulation is to protect the client. This is wonderful
for the investor because your interest are always protected and the fund
manager is not allowed to invest irrationally and risk your money.
Liquidity
Money markets are
very liquid compared to products like saccos, bonds and stocks. The funds
in money market are only invested in financial securities that have very
short maturity. This enables you to access your money very easily especially
if your fund manager is a bank. Some fund managers offer same day
withdrawal.
Yield
This is a product
that gives investors a relatively higher yields than the
other conventional investments like savings account. It’s a great way
to save while making some money while at it.
Disadvantages of Money Markets
Varied return
Since the fund
managers invest the pooled fund in different products, return varies. Return
can sometimes be high but on the flip side, it can also
be significantly low. This is a downside because you cannot tell for
sure how much money you will make as interest since the return
changes on a daily. When the market is down, or the investment
doesn’t go too well then the client does not get the best return.
Low risk and low returns
The money market
returns are significantly low return if you compare with other products.
Notably low especially if you have little money. The interest is calculated per
annum so if you count the monthly interest, it may not make much
financial sense to you. For your money market to give you significant
return, you need to invest more.
The golden rule for
investment is the higher the risk, the higher the return. Since money
market are extremely low risk, you should manage your expectations when it
comes to interest.
Attached Costs
If you look keenly,
all money market funds have a cost attached to them. This is called the
management fee. For most money market funds, its usually a percentage of what
you make as interest. Most fees are at 2% and this is what is used to run
the fund managers. Sometimes when you deduct the fees, the money you are left
with is not much.
Penalties
Some money
markets funds like CIC MMF have penalties if you fail to meet
certain conditions. They allow you to withdraw a maximum of two
times a month with no charges. If you withdraw more than twice in a month,
you will be penalized KES 1,000 which is a significant chunk of your savings.
Now, incase of emergencies and you need to access money severally, you will be
penalized heavily which beats the whole point of investing.
Risk
Since money market
funds are not issued by the government, there is an element of risk attached to
them. Even though they are highly regulated and have the CMA
oversight, sometimes fund managers can go down or become bankrupt. The
risk here is very minimum and not likely to happen but it still
exists. Types of risks that money market face are; market risk, interest
rate risk, default risk and counter party risk.
Understanding these aspects of MMFs is crucial for any
investor looking to delve into this market. The blend of higher potential
returns, liquidity, and lower risk makes MMFs an attractive option for Kenyans
seeking to optimize their investment portfolios. However, like any investment,
it's essential to weigh these benefits against potential risks and individual
financial goals.
Top 20 Money Market Funds - Detailed Analysis
1. Cytonn Money Market Fund
The Cytonn
Money Market Fund is renowned for its high yield and accessibility. It
offers a competitive edge with an effective annual rate of 10.8%. This fund
is tailored to investors seeking higher returns with manageable risk levels. As
of the writing of the article, the Cytonn Money Market Fund delivered a daily
yield of 10.01%, translating into an effective annual rate of 10.53%. These
numbers indicate a strong performance, especially in comparison to traditional
savings options. The fund is known for its user-friendly investment process,
allowing investors to manage their investments through digital platforms
conveniently.
2. Apollo Money Market Fund
Managed by APA Insurance, the Apollo Money Market Fund
focuses on diversifying risk by investing in a variety of options like treasury
bills, corporate notes, and deposits. It allows a minimum investment of Ksh
1,000. It has been known to offer an interest rate of around 9.4%, with an
annual management fee of up to 2%. This positions it as a competitive choice
for both small and large investors.
3. GenCap Hela Imara Money Market Fund
This fund stands out for its strategic investment in a
diversified portfolio, aiming to maximize returns while maintaining liquidity.
The fund reported an effective annual yield of 10.1%, showcasing its strong
performance in the market. It is designed for investors looking for a blend of
safety, liquidity, and competitive returns.
4. Zimele Money Market Fund
Zimele offers an accessible entry point with a minimum
deposit requirement of Ksh 100 and the convenience of M-Pesa for
transactions. With competitive interest rates and a focus on the safety of
funds, Zimele recorded a 9.9% average return, appealing to investors seeking
stable and reliable growth.
5. NCBA Money Market Fund
The NCBA Money Market Fund offers a well-balanced risk
profile, making it a suitable option for conservative investors. It has
demonstrated consistent performance with an average return of 9.9%. The
fund's strategy involves investing in high-quality, short-term debt
instruments, ensuring both capital preservation and liquidity.
6. Sanlam Money Market Fund
The Sanlam Money Market Fund is designed for both individual
and corporate investors. It is ideal for short-term investments ranging from 1
to 12 months. It offers an accessible entry point with a minimum investment of
Ksh 2,500. The fund is known for its low-risk profile, rated between 0-1.6 on
Sanlam's scale. It invests in high-quality interest-bearing assets, fixed
deposits, and near-cash holdings in the Kenyan market. The compounded interest
is calculated daily and distributed monthly, providing a steady return on
investment.
7. Kuza Money Market Fund
The Kuza Money Market Fund is structured to offer high
liquidity, enabling investors to access their funds with minimal restrictions.
With a focus on security, the fund invests primarily in secure and short-term
debt instruments. The fund reported an annual yield of 9.8%, positioning it as
a competitive option for investors seeking both safety and profitability.
8. Nabo Africa Money Market Fund
Nabo Africa Money Market Fund is known for its higher
minimum investment requirement of Ksh. 1,000,000, catering to investors with
larger capital outlays. It aims to maximize current income by investing in a
diversified portfolio of short-term debt securities and instruments. The fund
emphasizes capital preservation and maintaining high liquidity, making it an
attractive option for high-net-worth individuals and institutional investors.
9. Old Mutual Money Market Fund
Old Mutual's Money Market Fund is notable for its stability
and credibility despite a relatively high annual management fee of up to 3.37%.
It offers a diverse investment portfolio, including treasury bills, corporate
notes, and deposits. With an annual yield of 9.7%, the fund provides reliable
liquidity and a cushion against inflation, making it a suitable choice for
long-term investors.
10. Dry Associates Money Market Fund
Managed by Dry Associates Investment Bank, this fund offers
a unique blend of investment options. It focuses on delivering consistent
returns with a 9.1% interest rate and maintains a portfolio of Ksh. 2.84
billion. The fund's strategy involves investing in diversified equities and
fixed-income securities, making it a versatile choice for investors seeking a
balance of risk and return.
11. Madison Money Market Fund
The Madison Money Market Fund is designed for capital
preservation and offering competitive returns above treasury bills. It invests
in short-term debt securities, including treasury bills and commercial papers.
Notably, it provides flexibility with no penalties on withdrawals, making it
investor-friendly. The fund offers competitive yields, calculated at 2% above
treasury bills, with an effective annual yield reported at 8.96%. This positions
it as a lucrative option for those seeking steady and reliable investment
growth.
12. Co-op Money Market Fund
The Co-op Money Market Fund offers a daily yield of 8.32%
and an effective annual rate of 8.68%. This fund is tailored for individuals
planning for short-term financial goals, like emergency funds, school fees, or
land purchases. The fund calculates interest earnings daily and applies a
withholding tax on the monthly income, ensuring transparency and ease of
understanding for investors.
13. CIC Money Market Fund
The CIC Money Market Fund is characterized by its liquidity
and flexibility. Investors can withdraw funds at short notice without penalty
fees, making it ideal for those requiring quick access to their investments.
Investing in government paper and liquid instruments, the fund offers
competitive returns, with interest calculated daily and credited monthly. This
approach ensures both security and profitability for investors.
14. ICEA Lion Money Market Fund
The ICEA Lion Money Market Fund is known for its focus on
investment security. It invests in a mix of government and corporate debt
instruments, ensuring a stable and secure investment platform. The fund has
demonstrated consistent performance, offering an effective annual yield of
8.9%, which is competitive in the Kenyan MMF market.
15. British-American Money Market Fund
This fund is aimed at investors seeking a mix of safety,
liquidity, and reasonable returns. It invests primarily in short-term
government securities and high-grade corporate debt. With an effective annual
yield of 8.9%, the British-American Money Market Fund offers a stable
investment option for conservative investors looking for steady returns without
significant risk.
16. Orient Kasha Money Market Fund
Orient Kasha Money Market Fund offers an annual yield of
8.6%, which is appealing to investors looking for a blend of modest returns and
low risk. It is known for its diversified investment portfolio and solid risk
management strategies. The fund focuses on maximizing investor returns while
maintaining high liquidity, making it a suitable choice for investors with
short-term financial goals.
17. Absa Shilling Money Market Fund
The Absa Shilling Money Market Fund is designed to offer
investors a safe and liquid investment avenue. It mainly invests in
high-quality short-term debt instruments. The fund has shown steady performance
with an annual yield of 8.2%, making it a viable option for those seeking
secure and consistent returns.
18. Equity Money Market Fund
Equity Bank's Money Market Fund is known for its robust
portfolio, offering annual interest rates between 10 and 15%. This fund is
ideal for investors looking for higher returns within the realm of money market
funds. The fund's investment tools include a diverse mix of equities and
fixed-income securities, catering to investors with a slightly higher risk
appetite.
19. Etica Money Market Fund
Etica Money Market Fund, launched in 2021 by Etica Capital
Ltd, is a notable new entrant in the Kenyan money market sphere. It has
disrupted the market by offering high returns and targeting retail clients with
smaller investments. As of September 2023, Etica recorded an impressive
Effective Annual Yield Rate of 12.58%, the highest among Kenyan Money Market
Funds at that time. This stellar performance showcases its potential as a
highly rewarding investment option. The fund invests in a variety of
instruments, including cash and cash equivalents, treasury bonds, bank
deposits, and trade receivables, aiming to diversify and minimize risk while
maximizing returns.
Etica is accessible with a minimum investment and top-up
amount of only Ksh 100, making it extremely approachable for small-scale
investors. The fund allows withdrawals within two business days and does not
have a lock-in period, offering high liquidity.
20. Enwealth Money Market Fund
Managed by Enwealth Financial Services, it has shown
impressive performance. As of July 2023, the Enwealth Money Market Fund was the
best-performing MMF, with an average Effective Daily Yield of 11.43%. This fund
has consistently delivered strong returns, making it an attractive option for
investors seeking stable and competitive earnings from their investments.
How to open a Money Market account in Kenya:
Opening a money market fund is a very simple
process. The steps will vary with the fund manager you invest with but for
the most part, these are the general steps.
- Do
your research and determine which money market fund manager you will
invest with. This should be guided by your needs.
- You
can visit your fund manager or give them a call if you
have any inquiries or to get more insights on their fund.
- You
will have to fill a money market account opening form.
- You
will then be required to deposit the minimum amount of money required to
open an account. The amount varies with every MMF fund with most ranging
between KES 2,000 to KES 5,000. You will deposit the cash to an
account they will give you.
- Once
the account is created, you will receive an email with your portfolio
number. This is to notify you that the account has been successfully
created.
- You
will be guided on how to withdraw and deposit money into your money
market account on a need basis.
What documents are required to open a Money Market:
- A
copy of your National ID or your passport
- Passport
size photo
- Your
bank details
- Copy
of your KRA Pin Certificate
- A
filled money market form
Most fund managers have created mobile apps where you can
tract your investment any time you wish. You can also directly issue your
instructions through the app and receive monthly statements.
Some of the factors to consider when picking the Money Market to invest in
Low risk investment
Money market is one of the safest
investment tools in Kenya. This is because your principal
is guaranteed despite the marketprevailing conditions. If
you are risk averse, this is a product you should consider. The fund
managers guarantee your principal and only invest in short term and low risk
products.
Convenience
As an investor, you need to check how convenient
your money market fund is. The convenience needs to be both when
depositing the money into your account as well as when withdrawing. You
need to know how easy you can access your money in your bank account. Another
thing that can make it convenient is mobile apps as they provide you
with a better user experience.
Return on Investment (ROI)
This is the whole point of investing in the first place, to
get asignificant return. Money market interest rates range between 6% to
10% and some may go as high as 12% daily. It is important to note that the
rates keep changing on a daily. Consider the ROI
when investing so as to make financial sense.Remember to also
leverage on compounding as it will give you a better ROI.
Liquidity
How soon can you access your money when you need
it? This is key when looking for a money market fund to invest in.
Liquidity differs as for some; you can get your money on the same day
after requesting for it while for some you need to wait for two to four working
days to get your money. If you are using MMF as an emergency fund then you need
to know how soon you can have the cash.
Innovation, customer service & quality of research
Since it’s a very competitive industry, pick an MMF fund
manager who goes the extra miles. Most of them have come up with mobile
applications to give the customer a better and easier experience. Pick a
fund manager who sends you detailed reports and constantly updates
you on relevant information in the market. Remember, they take a management fee
so go for the one that gives you value for your money.
Tax Implications
Although MMF have lower taxes than conventional
investments, its important to check the amount. This will be a determinant on
whether to proceed and invest or not.
FAQs About Money Market Funds in Kenya
What is a Money Market Fund?
- MMFs
are investment vehicles that pool funds from investors to invest in
low-risk, short-term debt securities like treasury bills and commercial
paper.
How Safe Are Money Market Funds in Kenya?
- MMFs
are generally considered low-risk investments. They invest in
high-quality, short-term debt instruments, making them more stable
compared to stocks or long-term bonds.
What Returns Can I Expect from MMFs in Kenya?
- Returns
vary based on the fund's performance but typically range from 7% to 12%.
For instance, Etica Money Market Fund recently reported an Effective
Annual Yield Rate of 12.58%.
Can I Lose Money in a Money Market Fund?
- While
MMFs are low-risk, they are not entirely risk-free. Factors like interest
rate fluctuations and credit risk can impact returns.
How Do I Invest in a Money Market Fund in Kenya?
- Investing
usually involves opening an account with the fund, completing an
application form, and making an initial deposit. Minimum investment
amounts vary by fund.
Can I Withdraw My Money Anytime from an MMF?
- MMFs
offer high liquidity, allowing investors to withdraw their funds with
minimal restrictions. However, withdrawal terms can vary between funds.
Concluding Thoughts
When selecting a money market fund in Kenya, consider the
following:
- Investment
Goals: Match the fund to your financial goals, whether it’s for
emergency savings, education planning, or short-term income generation.
- Risk
Tolerance: Assess your comfort level with risk. Even though MMFs
are low-risk, they are not completely devoid of risk.
- Fund
Performance: Look at the historical performance of the fund, but
remember that past performance is not indicative of future results.
- Fees
and Expenses: Understand any fees or charges associated with the
investment, as these can affect your net returns.
- Fund
Management: Consider the reputation and track record of the fund
manager.
In summary, money market funds in Kenya offer a diverse range of investment opportunities, each with unique advantages and strategies tailored to different investor needs. From high liquidity and low-risk profiles to competitive returns and diversified investment options, these funds exemplify the variety and depth of the money market fund landscape in Kenya. Whether you are a novice investor or have a seasoned portfolio, there is a money market fund that can align with your investment objectives and risk tolerance.