January 2020 Review Of Top 5 Money Markets Funds In Kenya

Money Market Funds are gaining momentum in Kenya as an alternative investment vehicle for the majority of investors. There is still, however, limited information about Money Market Funds.

For the month of January 2020, the top 5 money market funds in Kenya, according to Vasili Africa were:

Cytonn with an annual average yield of 11.03 percent

Zimele with an annual average yield of 9.91 percent

Nabo with an annual average yield of 9.85 percent

Sanlam with an average annual yield of 9.81 percent

CIC with an average annual yield of 9.72 percent

But what should you look at before deciding to invest in Money Market Funds?

The rate of interest

MMF earns interest daily and it is compounded and annualized. The rate of interest is known as daily yield and effective annual yield. The daily yield is the daily interest which is computed on the funds daily and credited to your account and the effective annual yield is the compounded rate for the period. The Yields fluctuate on day today.

The computation on your funds takes into account the number of days in the month your principal was invested, any additional deposits and withdrawals. Withholding tax of 15% is also deducted on the interest earned.

Money Markets also charge a management fee that is deducted. The management fee is the amount that fund managers charge for doing all the heavy lifting which is looking for viable investments to invest your funds and earn the rates and it is also what they use to pay themselves. They are also in operations and need to keep the business running. The fee is not standard and differs from each institution. The fee is charged on an annual basis and is netted off your daily interest rate.

When checking the rate always remember to ask if it is net of fee because some funds report their rates gross of fee which might mislead you as the investor.

Minimum initial deposit and minimum top-up

It is always important to find out the minimum deposit and top up. The minimum deposit is usually for activating and keeping your account active. This amount needs to be maintained at this level for it to keep earning the interest.

Some fund managers have a minimum top-up amount which is the additional deposits you add to make your account grow.

Where is your money being invested

MMF’s are liquid and low-risk because of the instruments your cash is invested in. Ensure before you invest you ask your investor for a breakdown of the instruments they invest your money. You can ask how they allocate the funds to different assets and the percentages, the duration of the investments, profits and losses, etc. This helps you to assess whether the fund is investing in illiquid assets.

Withdrawal charges

One of the key features that make MMF attractive is their liquidity which means you can exit when you need to since the minimum lock period is usually less than 30 days. The majority of the MMFs do not charge a withdrawal fee if you withdraw just once in a month but subsequent withdrawals in the same month might incur charges. It is something you need to find out before investing in the fund.

READ: The Best Investment Options for Young Adults in Kenya