Money markets are one of the most popular investment options in Kenya. In 2021, the Assets Under Management (AUMs) for money market funds in Kenya was about KES 110 billion.
But what are they? Money market funds are investment vehicles that invest in low risk assets including short term instruments such as T-bills, cash deposits and commercial paper. This is because the primary goal of a MMF is capital preservation.
Why invest in MMFs?
- Liquidity. Money market funds are very liquid (easily convertible to cash). For investors who want to earn interest on their money but don’t want to invest in long term assets, MMFs are the best option. Most MMFs in Kenya allow withdrawals within 1-3 days.
- Safety. Since MMFs only invest in government securities, low risk commercial paper and cash deposits, they are considered very safe investments. This is because government securities are ‘risk free assets’.
- Additionally, the primary goal for a MMF is capital preservation, hence it is unlikely that you will lose your money.
- High interest rates. MMFs in Kenya return between 7-11%. Considering you are investing in ‘low risk’ assets, these are very good rates for you. They are certainly higher than putting your money in a bank (which is one of the worst things you can do financially!)
How to invest in MMFs
It is relatively easy to open a MMF account in Kenya. Most money market funds have an app that allows for self registration.
The only things you need are
- A bank account.
- KRA pin (for filing withholding tax)
- Minimum deposits (for most MMFs, this amount is KES 1000 and below)
Some MMFs may require additional items to register, but these are the most essential. And with the above, you are good to go!
Best MMFs to invest in
There are many factors to consider when investing in a MMF – the yield, reputation ( remember Cytonn), digital integration. The best money market funds (in no particular order) in Kenya are
- Cytonn
- Has the highest yield in Kenya at 11%. Although they have been plagued by controversy recently, if you can handle the risk, they do provide the best returns.
- Zimele
- Second best returns in Kenya. One great thing about Zimele is you can start with KES 100 as the minimum investment and grow from there.
- CIC
- The largest MMF by assets in Kenya – controlling about 40% of the total assets under MMFs in Kenya.
- Britam
- Offer decent returns and reputational stability.
- Sanlam
- They are one of the newest MMFs in Kenya.
There is one last thing with regards to MMFs that people often don’t talk about. When choosing a MMF to invest with, not only should you consider the yield that they give, but also the service fee. This is a fee that the MMF charges you to manage your money. In most cases, it is 1-2% of your profits.
There is also a 15% withholding tax that you pay on your profits (hence the reason for the KRA pin!). All this is important so that you know your net return for your investment. Here is an example for you.
BETWEEN TWO EARS 