An Overview of Collective Investment Schemes; Unit Trust Mutual Funds and Money Market Funds  in Kenya

Investment is one of the major topics in finance that is important to grasp and know about as an individual regardless of your profession or background. This is because it is through investments that their financial assets grow and they earn better returns. In Kenya, there has been an increased awareness of investment options so that people can invest their money for better returns. This is done through mainstream media, social media, and government agencies such as the CMA Investors Week program. In this article, we look at collective investment schemes in particular money market funds that have been very common amidst financial inclusion and access to technology.

Table of Contents

1. Introduction to Collective Investment Schemes
2. Types of Collective Investment Schemes
3. Governance Structure of Collective Investment Schemes
4. Money Market Funds in Kenya
5. List of Licensed Money Market Funds
6. Performance of Money Market Funds
7. Benefits of Investing in Money Market Funds
8. Factors to Consider while Choosing a Money Market Fund
9. Starting your Invest Journey in Collective Investments

An Overview of Collective Investment Schemes in Kenya

These are investment schemes that pool funds together from different investors and are managed by professional fund managers on behalf of the investors. Collective investment funds from different investors are pooled to form large diversified portfolios and may be for different shared investment objectives e.g. to receive profits, income, produce or even property.  

The Collective Investment Schemes(CIS) offer diversification, liquidity and continuous professional management with options for low-income, middle income and large-income people within the economy to invest.  

CIS may be constituted as a company, a trust or other legal entities that CMA can approve, as per the First Schedule of CMA Regulations 2017 (2)(a) (i).Mutula Fund , (ii) Unit Trust (iii) investment Company. Most CIS are formed through a trust deed which is a legal document governing the establishment of a unit trust or mutual fund and includes every instrument that affects the powers and functions of parties to the CIS.

The pooled resources in the scheme are invested by the fund manager according to the specific investment objective established by the scheme.

When you invest in a collective investment scheme such as a mutual fund or unit trust, you get a more diversified holding than you would with individual security, and you can enjoy the convenience of automatic investing if you meet the minimum investment requirements with most funds having a minimum of Ksh 1,000.

Types of Collective Investment Schemes

A collective investment scheme may take either of the following forms:

1. Equity Fund– The fund invests mainly in publicly traded stock to offer returns in the form of capital appreciation or dividends over the medium to long term.Learn how to invest in Shares at Nairobi Stock Exchange
2. Bond/Fixed Income Fund – The fund invests in short-term debt securities such as treasury bonds and treasury bills, and corporate bonds giving returns to investors in the form of interest and capital grith.
3. Balanced Fund– These are funds that invest in both Equities and fixed-income securities as diversified portfolios hedging against market exposure risks.
4. Money Market Fund –  The fund invests in short-term debt securities such as bank deposits, treasury bills and commercial papers. Money markets have been on a popular trend due to more awareness as more entities have been licensed by CMA and are offering a Money Market fund product from Commercial banks, investment banks to insurance companies.  

5. Special Fund– This is a fund established for the purpose of facilitating investment by a special group of persons with a common interest in a listed company

Governance Structure of a Collective Investment Scheme

A collective Investment Scheme should have the following as per the CMA regulations for it to be approved:

1. Fund Manager
2. Custodian
3. Trustee

A)The Fund Manager

The fund manager is a professional company or subsidiary licensed by CMA to operate as a fund manager. A fund manager is appointed in writing to carry out the administration of the investment in accordance with the directions of the trustees and the trust document forming the collective investment scheme.  The main role of the fund manager includes; advising the trustee or board of directors on assets available for investment, formulating prudent investment policy, and investing the scheme’s assets in accordance with the scheme investment policy, amongst other roles as specified in Sec 17 (2) of the CMA regulations.

B) Custodian

 The custodian for a collective investment scheme is mandated to keep safe custody of all the securities owned by an investment scheme. The custodian as per Sec 34 (1) of the CMA regulations can only be a bank or a financial institution approved by CMA to offer custody services.

C) Trustee

 The trustee is a commercial bank or a financial institution licensed by CMA with the role of ensuring the custodian takes custody of all investment assets of the investment scheme and also ensuring the fund manager manages the fund as per the formation trust deed and agreement of service.

Licensed Collective Investment Schemes by CMA

 The following are a few of the CMA-authorized collective investment schemes with a full and Up-to-date list accessible on the CMA website via the following link

Money Market Funds Overview in Kenya

A money market fund is a collective investment scheme, that is a short term low-risk investment, that typically invests in shorter-term, lower-credit-risk debt which one can invest in as an alternative investment to bank fixed accounts.

According to date from CMA Q2 2024 report, money market funds account for the biggest share of the collective investment market with 67.4%. There has been a growth of the Money market funds with total assets under management (AUM)  amounting to Ksh 254.06 billion

An Overview of Assets Under Management in Collective Market Investment Scheme by Different Companies as per Q2 2024 CMA Report

Sign up for the CIC Collective Investment Fund

Register for a CIC Trust Scheme, the largest scheme by market capitalisation.

The minimum amount on Sign up is Ksh 5,000 and you can top up any amount from Ksh 1,000.

The good thing with CIC:

1. They have fewer management fees
2. Swift Online Sign-up Process
3. You can open an account for a minor – a good tool to start growing your kids savings amount for school fees.
4. You can register a Joint Account- thereby convenient for a group such as Chama with a goal or a Family
5. You can sign up for your Organization – Limited Company

Requirements

1. National ID or Passport Document
2. KRA PIN number
3. Proof of Bank Account – ATM Card or Bank Statement

Sign Up Today

Sanlam Money Market Fund Synopsis

Sanlam Collective Investment has the following funds:

1. Balanced Fund
2. Ksh Money Market Fund
3. USD Money Market Fund
4. Fixed Income Fund

Sanlam is among the best-performing money market funds, with an average return of 14.43% above the 91-day treasury bill. What makes Sanlam MMF a good deal is the affordable minimum registration amount of Ksh 2,500.

Sign Up for Sanlam MMF here

Requirements

• Proof of Bank Account – ATM Card or Bank Statement
• National ID or Passport Document
• KRA PIN Number

Benefits of Investing in a Collective Investment Scheme / Money Market Fund

1. Professional Management

The funds are managed by professional licensed fund managers who apply their knowledge, expertise and duty of care to invest in assets that give better returns.

2. Low Cost of Investment

Collective Investment schemes such as Money Market funds do not require large funds for an individual to get started.

3. Diversification

By investing in collective investment schemes unit trusts, one gets access to well-diversified investments where the funds are spread over different classes of investments. E.g. Short-term deposits, treasury bills etc.

4. Liquidity

There is the ease of entry and exit where the units are easily sold and an investor can get access to money from their investment with most MMFs offering 24-hour Withdrawal services.

5. Security

The governance structure of collective investment schemes guarantees investors funds security as the assets are kept in the safe custody of a custodian and not the fund manager investing the funds. 

What to look at when choosing a Money Market Fund

 Collective Investment Schemes present an opportunity for investors to invest in professionally managed schemes giving them flexibility on the amount they can invest in either of the types of schemes such as Money market funds, Equity funds, fixed funds and balanced funds. With the many licensed firms offering collective investment products, what should one look into when choosing the company to invest with? The following are a number of factors to consider:

1. The Historical Return of the Fund

Looking at the historical retunes of the fund to analyse which gives a higher return depending on the fund you want to invest in. All licensed funds give a periodic report on their funds’ performance which is accessible on their website. They also often give monthly report fact sheet summaries of the fund’s performance. By analyzing this data one can rank and pick the best performing one.

2. The Management Overview

As highlighted, a collective investment scheme governance includes trustees, custodians and funds managers who are often the ones in charge of investing and growing the fund. It is important to look at the credibility of the fund manager to ensure they do not have a bad reputation or a bad history or they may have been initially penalized by the regulator for malpractice or breach of any applicable laws and code of ethics.

3. Charges

Collective investment schemes charge a fee. The funds usually charge a management fee which is often an annual percentage based on the amount invested. It is important to look at the fund managers’ charges vs the return to ensure they are giving sufficient net return and your fund is growing exponentially.

4. Minimum Amount and Subsequent top up Amounts

Different companies have different minimum amounts to invest whether it is a Kenyan Shilling or a dollar-denominated fund. Knowing what is in your limits in terms of the minimum amount you should have to get started and minimum subsequent top-ups will be a key consideration.

5. Investment Goal

 Your financial goals in the medium term to long term will also be a factor to consider when choosing the company to invest in. Where one is having short-term investment money market funds would be a fund to consider while those having long-term goals can go for fixed-income funds.

Start your Collective Investment Journey Today!

 With collective investment schemes offering an opportunity for one to make investments in units and mutual funds from minimal amounts, it is time you start investing in them. They are safe, and stable and guarantee a return on your amount unlike having your funds sitting idle in current bank accounts.

The liquidity of the money market funds makes them a top choice option of keeping your short-term spending amounts for them to earn an interest.   You can start your investment journey in collective investment schemes today with our Firm’s Agency assistance. We are an authorized intermediary with a few investment banks and insurance firms offering unit trusts investment opportunities, where we assist in account opening and as well giving periodic newsletter emails on tips to grow your investments. Get in touch with our team today to get started