A Guide to Investing in a Money Market Fund in Kenya

What is a Money Market Fund?

A Money Market Fund (MMF) is a type of mutual fund that invests in low-risk, short-term financial instruments such as treasury bills, commercial paper and fixed deposits.

Fund managers pool together clients’ money and invest in a diversified portfolio of these short-term investments. In this regard, the investors receive a return on their investments in form of interests. ?

Who Provides Money Market Fund in Kenya?

Several institutions in Kenya offer MMFs, including investment firms, banks and insurance companies.

They include and are not limited to; CIC, Sanlam, Cytonn, Etica, ICEA Lion, NCBA, KCB, Zimele, Britam, SC Shilingi, Nabo Capital, Jubilee, Genghis, and Madison among others.

Key Considerations Before Investing in a Money Market Fund

1.????? Minimum Amount to Open an Account and Top-Up Amounts

·???????? Initial investment and top-ups can range from Ksh 100 to Ksh 100,000 depending on the fund manager.

2.????? Interest rates

·???????? MMFs effective annual yields range from 7-12%, with interests typically calculated daily and compounded monthly. This means that the principal plus the interest earns a return monthly. Therefore, the actual interests earned annually could be higher or lower depending on the fund’s manager performance.

·???????? Also check if the interest rate is gross or net. The gross rate is exclusive of management fees and other charges while the net interest rate is inclusive of all fees.

3.????? Fund Performance and Consistency

·???????? Past performance of a fund is a significant key indicator but does not guarantee future performance as interest rates highly fluctuate.

4.????? Management Fees and Other Charges

Which Is the Best Money Market Fund in Kenya?

There is no “best” MMF, the right choice depends on your personal needs and objectives.

Consider the following features when choosing a fund to invest in;

·???????? Initial investment and top-up amounts

·???????? ?Interest rate

·???????? Flexibility in withdrawing funds

·???????? Management fees ?

Benefits of investing in a money market fund

·???????? Lower risks: MMFs are considered safer compared to other investments

·???????? Convenience: A simple way to grow your savings

·???????? Interest Earnings: You can earn modest interests on your savings

·???????? Liquidity: Easy access to funds, making MMF ideal for emergency savings

Potential Drawbacks of Investing in A Money Market Fund

·???????? Fluctuating returns: Returns depend on the performance of the fund manager

·???????? Taxation: Interest from MMFs is subject to a 15% withholding tax

·???????? Management risk: Poor management can lead to low returns or loss of investment

Key Takeaways:

• MMFs are excellent for growing funds for larger investments like treasury bills and bonds
• MMFs are a convenient way to save for goals such as vacations, school fees or expensive purchases
• Pay attention to interest rates and withdrawal flexibility
• Conduct a thorough research before investing to find a MMF that best suits your needs

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Investing in a Money Market Fund in Kenya can be a smart financial move, provided you consider all these factors and choose wisely.

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