How do you save your money? Do you use a current bank account, a savings bank account or do you save through the merry go round chama? If these are some of the savings options you have, then it might be time to change tact to grow your money.
Ideally, according to Josephine Murage, an investment banker and personal finance consultant, your money should be growing at a faster rate than the rate of inflation.
“Savings options such as merry-go-round do not grow money at all. They are deeply embedded into our financial culture but they are really not productive. For money to grow, it needs to earn interest at a reasonable rate and risk ratio,” says Ms. Murage.
In Kenya, money market funds and fixed income funds are two of the options that will earn you compounded interest at a rate that is way above inflation. When looking to invest, there is usually a slight difference between Money Market Funds and Fixed Income Funds.
For a start, money market funds invest in short-term fixed income securities such as treasury bills, bankers’ acceptances, commercial unsecured short-term debt and certificates of deposit.
The money market funds are usually considered to be generally safer investment vehicles (although no investment is completely risk-free), but with a lower potential return than other types of mutual funds.
On the other hand, fixed income funds buy investments that pay a fixed rate of return like government bonds, investment-grade corporate bonds and high-yield corporate bonds.
They aim to have money coming into the fund on a regular basis, mostly through interest that the fund earns. High-yield corporate bond funds are generally riskier than funds that hold government and investment-grade bonds.
Ms. Murage says that fixed income funds are ideal for investors looking for low to medium risk. They are also ideal for investors who want to make a lump sum investment with additional lump sum top ups.
For instance, the NCBA Bank’s Kenya Shilling denominated Fund is suitable for investors whose primary objective is to preserve capital while generating a regular interest income. “Funds are invested in short-term instruments including Treasury bills and bonds, fixed deposits and other interest-earning assets,” says NCBA in an investment statement.
According to the NCBA, the rates on the Fixed Income Fund are quoted gross of withholding tax and net all expenses. The management fees applicable on the fund is 2 per cent per annum on the assets under management.
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As of October 25, 2024, the NCBA Fixed Income Fund had a daily yield of 11.1 per cent and an effective annual yield of 11.68 per cent. These yields were way above the inflation rate, which according to the Central Bank of Kenya (CBK) stood at 3.56 per cent as of September 2024.
Like the traditional money market fund, Fixed Income Funds offer investors the ability to invest and grow their money, and the space to make withdrawals on short notice easily whenever their needs arise. “The fund also allows for daily withdrawals or investments of a minimum of Sh. 1,000,” the NCBA states.
When looking to invest in a fixed income fund, it is highly advisable that you do your diligence before giving your money out to a fund manager. Some of the attributes you will need to look at include licensure by the Capital Markets Authority and the fund manager’s ability to actually run the fund, their capital base and track record.
Take the NCBA Bank for instance, which runs the NCBA Fixed Income Fund. In the first half of the 2024 financial year, the bank marked a major milestone when it surpassed the Sh. 100 billion in shareholder funds.
In this period, shareholder funds grew by 14.8 per cent to stand at Sh. 101.4 billion from the Sh. 88.3 billion shareholder funds that were recorded in the same period the previous year.
“I think that we now have a large capital base and it continues to grow. We can now do deals that are of significant size. The maximum lending we can do is 25 per cent of our capital,” says NCBA Group Managing Director and Chief Executive Officer John Gachora.
