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How to make money investing in unit trusts

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Unit Trusts in Kenya: Unit Trusts are vehicles used to pool resources together by different investors for investment in channels such as stocks. They’re managed collectively by a fund manager.

They are a short-term investment suitable for an investor who is averse to risk (losing money).

They give better returns than interest in bank savings accounts or fixed deposit accounts. Last year, some unit trusts offered up to over 18 per cent in returns, which was higher than T-bills.

If you want to buy unit trusts, you’ll need to go to a licensed fund manager. Currently, there are 20 licensed fund managers in Kenya.

How it works:

On the basis of compound interest every month. Each month you earn interest which is added to your principal.

Minimum investment: Varies from trust to trust but the lowest is Zimele Asset Management’s unit trust at Sh250. You can invest additional capital at any time.

Types of unit trusts

  1. Money Market Fund – Invests in bonds and deposits made and kept outside Kenya, also known as offshore deposits.
  2. Balanced Fund – It’s a stable and less-risky investment. Invests in assets offering income, domestic money market, and offshore deposits which gain from the higher returns offered by countries outside

Kenya such as Switzerland, Mauritius and Cayman Islands.

  1. Bond Fund – Invests in bonds issued by the government and corporates.
  2. Equity Fund – Invests in securities and is best suited for long term investors looking to invest for over five years.
  3. Fixed Income Fund – Invests in securities such as bonds.

Takeaway: The Money Market Fund is the best option for new and small investors. It is low-risk, invests in short term securities, and has minimum balances unlike the other options.

Yields

Yields from unit trusts range from 6 per cent to 16 per cent per year.

Taxes:

  • No tax on these, except when you sell your units.
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