Treasury bills, commonly known as T-bills, are units of debt issued by a Government to the public in order to raise money to support government initiatives. This type of investment is safe because it is backed by the government.
T-bills are easily accessible and have a short predetermined maturity, typically of 91, 182 or 364 days. They are auctioned on a weekly basis in Kenya by the Central Bank of Kenya. The CBK offers T-bills with the minimum amount being Kshs. 100,000. T-bills are generally sold for less than they are worth, which is called discounting.
How does this work? If, for example, you buy a 364-day T-bill worth 300,000 shillings whose interest is 10 percent per annum, you will pay Kshs. 276,876. However, when the bill matures, the government will pay you 300,000 shillings translating to an investor return of Kshs 23,124. T-bills, therefore, enable investors to predict their returns quicker than most other investments.
On the other hand, a money market fund is a low risk and highly liquid saving instrument that falls under Unit Trust Schemes. Essentially, it is a pool of funds from various investors which is used to invest further into short term, high-quality debt instruments, including bank deposits, commercial papers and the T-bills discussed earlier. Interest is computed daily, summed up and credited to the investor’s account monthly.
Owing to the ability of MMFs to invest in various securities having different returns, MMF returns always tend to outperform T-bill returns.
Investing in a money market fund, therefore, is one of the most desirable options to save for a short-term goal such as a honeymoon, vacation or school fees through a fund that is generating higher returns.
Taking immediate action and investing with a money market fund can give you peace of mind because of the flexibility it accords you as an investor, especially its high liquidity and ease of withdrawal at any time usually with no extra charges and high returns. Money market funds are the best place to start when desiring to compound your wealth. Better invest in them early.
Some of the top money market fund providers in Kenya include the Cytonn Money Market Fund (average annual return of 11.0 percent*), Sanlam MMF (average annual return of 10.0 percent*) and Zimele (average annual return of 9.91 percent*) CIC MMF (average annual return of 9.70 percent*).
*The effective annual yield may fluctuate
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