In Kenya today, everyone is talking about investing, owning and buying shares, planning to leave employment by a certain age, and Sacco dividends. Another term that can’t seem to escape the tongues of Kenyans is money market funds, popularly referred to as MMFs.
Money market funds have been in existence for over two decades now, but they gained immense publicity during and after the COVID-19 pandemic, and today, Kenyans can’t stop talking about them.
Every other financial institution is launching an MMF and inviting Kenyans to invest. One of the famous entrants into this field is Zidii, which is heavily associated with Kenya’s leading telco, Safaricom.
So, what actually are MMFs? In this deep dive, we are going to look at how this financial instrument works, how to invest in them and how they differ from SACCOs and banks.
Money market funds in Kenya are a type of unit trust—also known as a collective investment schemes. These schemes pool funds from multiple investors into a single and professionally managed portfolio.
They are designed for stability and liquidity, and they cater to risk-averse individuals or those seeking short-term investment options.
MMFs operate under a well-defined framework to ensure security and transparency. At the core of the management of MMFs is the fund manager. This is a licensed entity responsible for investing pooled funds into low-risk, short-term securities. Examples of popular fund managers are Britam, Jubilee, or CIC,
It is the work of the manager to ensure their decisions align with investor objectives, prioritizing capital preservation and modest returns.
To safeguard investor interests, a custodian—typically a tier-1 bank like KCB or Equity Bank—holds the fund’s assets. This ensures they remain separate from the fund manager’s accounts.
Apart from the custodian, we have a trustee, often another reputable institution, whose work is to monitor compliance with regulatory guidelines and prevent risky investments. This layered oversight is enforced by Kenya’s Capital Markets Authority (CMA), which guarantees accountability and adherence to legal standards.
What is MMF’s investment strategy?
Money market funds focus on three primary avenues to generate returns while minimizing risk:
- Government Securities: These include treasury bills (T-bills) and treasury bonds. They are loans to the government. T-bills mature in under a year, offering quick liquidity, while bonds have longer terms, usually up to 30 years. Both are considered very safe, as the Kenyan government has a very low probability of defaulting.
- Bank Deposits: Funds are placed in fixed or call deposits with commercial banks, earning interest over agreed periods.
- Corporate Debt: This is a short-term commercial paper or bonds from stable companies like Safaricom or East African Breweries Limited (EABL). They provide slightly higher returns while maintaining low risk.
So, by MMFs diversifying across these instruments, they balance liquidity and stability, ensuring investors can access their money quickly while earning daily compounded interest.
Key features of Money Market Funds
Money market funds distinguish themselves through several critical attributes:
- Low risk: Investments are restricted to government-backed securities and high-grade corporate debt. This approach shields investors from market volatility.
- Daily interest accrual: Returns compound daily, with rates updated and published in newspapers like The Standard or Daily Nation. These rates are usually published in the business sections of the papers, usually towards the last pages of the edition. This means that a KSh 1,000 investment earning 10% annually grows steadily as interest reinvests automatically.
- Open-ended access: Unlike fixed-term investments, MMF investors can deposit or withdraw funds at any time and without penalties. Some managers process withdrawals within 24 hours via mobile apps or USSD codes, which is very convenient.
- Transparency: The CMA has directed these institutions to do regular reporting, thus ensuring fund performance and fee structures are publicly accessible.
Benefits of MMFs for investors
Money market funds appeal to a broad audience. This is usually due to their versatility and reliability. MMFs can be used as a secure place to keep your emergency funds, mainly because of the liquidity advantage.
You can quickly access your money during crises like job loss or medical emergencies. Additionally, these funds help combat inflation, which erodes savings in low-interest bank accounts. Historically, returns of 10–13% outpace Kenya’s average inflation rate of 6–8%, preserving your purchasing power when you invest in MMFs.
For businesses, money market funds can offer a place to park retained earnings or idle cash. If you want to start a business and you are still researching, MMFs can give you handsome returns on your capital instead of just letting it idle under your pillow or in a low-interest bank account.
Even individuals saving for short-term goals such as school fees or vacations can benefit from the daily compounding effect. No wonder some people claim compounding is the eighth wonder of the world due to its ability to grow wealth passively.
How to choose a money market fund in Kenya
Now, let’s say you have done your soul searching and are now contemplating opening an MMF account. How do you start? Selecting the right fund manager requires careful evaluation, especially at this time when news is rife of investors and institutions vanishing with peoples’ hard-earned savings.
So, when even you want to opt in, reputation is paramount; established you can consider reputable firms, backed by larger financial groups usually called mother companies. They provide added stability. Investors should also prioritize regulatory compliance by verifying the manager’s CMA licensing and reviewing quarterly performance reports.
Fees are another consideration. While management charges typically range from 1.2% to 2%, exceeding this threshold should be a red flag to you. Lastly, you need to confirm liquidity terms, This means how long it would take you to access your funds if you need them. Is it too long? Is the withdrawal process simple, or is it shrouded in mystery?
Sacco, bank or MMF: Where should I save my money for high returns?
How do MMFs compare with SACCOs?
While SACCOs and money market funds are both popular in Kenya, they serve different purposes. You can not say you are better off because you have one and don’t have the other.
SACCOs often offer higher returns (15–20%) through dividends on share capital. However, according to personal finance expert Margaret Njeri, they lack the liquidity of money market funds. Withdrawals from SACCOs may take weeks, (many Saccos require a 60-day notice), whereas money market funds disburse cash within hours or a few days.
Moreover, SACCOs involve equity-like risk if the institution faces financial strain, while money market funds prioritize capital preservation.
Getting started with MMFs
Investing in an MMF should be straightforward. After selecting a CMA-approved fund manager, you will be requested to submit basic documents (ID, KRA PIN, and bank details) online or via mobile apps.
Minimum investments start as low as KSh 100. This amount can vary depending on the manager you choose. Most funds do not have very strict or expensive terms, making these funds accessible to all income levels. Regular contributions—even small amounts—leverage compounding over time. For instance, if you are investing KSh 5,000 monthly at 10% annual interest, it could grow to over KSh 350,000 in five years.
To this point, it is evident that money market funds in Kenya blend safety, liquidity, and simplicity, making them ideal for first-time investors, cautious savers, or businesses managing cash reserves.
By partnering with reputable managers and leveraging regulatory safeguards, you can protect your capital while earning steady returns.
As financial expert Robert Kiyosaki notes, “It’s not about how much money you make, but how much you keep.” Kiyosaki is also famous for his quote that “the lack of money is the root of all evil.”
If prudently used, money market funds can offer a practical way for Kenyans to save and grow wealth in the current unpredictable economy.
