Things to Consider Before Choosing a Money Market Fund

A Money Market Fund is a low-risk investment mutual fund that invests in highly liquid, short-term instruments.

In Kenya, MMFs are regulated by the Capital Markets Authority (CMA). There are over 20 MMFs that are regulated by the CMA.

Money Market funds pool money from investors and invest in highly liquid short-term investments such as treasury bonds, treasury bills, and cash equivalent securities.

The interest rate varies day to day depending on the market conditions.

Benefits of Investing in an MMF

1. Highly liquid.

You can access your money within 2- 5 days.

2. Very low risk.

You can hardly lose your money in an MMF. You never lose your capital. They are almost risk-free and invest in cash equivalents that have very low risk.

3. Little capital is required to get started.

Some MMFs require as little as 100 shillings to get started. The average initial investment lies between 1,000- 5,000. They allow you to invest in areas like treasury bills and bonds that you wouldn’t otherwise invest in as an individual.

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4. Better returns than bank accounts.

MMFs have average annual return rates of around 7-10 percent higher return rates than banks’ saving accounts and a hedge against inflation.

Why Do Investors Prefer Money Market Funds?

1. Ideal avenue to stack your emergency fund.
2. Ideal avenue to accumulate your savings for a bigger investment like real estate, buying land, or entry into the stock market.
3. Ideal avenue to stack cash intended to meet your short-term goals like Wedding plans, holiday plans, or school fees.

Factors To Consider When Choosing Which MMF To Invest With

Regulation

MMFs are regulated by the Capital Markets Authority (CMA). Ensure the MMF you are investing in is regulated by CMA.

Beware of scammers who may want to steal your hard-earned money.

Performance Record

How has the fund performed in the last 5-10 years? Have they been consistent with their returns? How do the returns of the fund compare with other MMFs and the market average?

Average annual return rates

Be cautious of MMFs that have higher average annual return rates than their peers or the market average.

They may be using more aggressive strategies that may put your money at risk. High return rates may mean high risk.

Investment costs

MMFs charge fees like management fees and withdrawal fees. Many funds may not openly disclose the fees they charge you. Make sure you find out.

Investment costs are not your friend. They will shrink your returns.

Ease of Access

How easily can you access your money? On average, you can get your money within 2-5 business days. Some MMFs allow you to access certain amounts of money within 24 hrs While others even allow deposits & withdrawals via M-Pesa.

Where do they invest their money?

Look at their portfolios. Are they investing their money in highly risky investments? If they are, they are likely to lose your money as they pursue higher return rates.

How To Join an MMF

First, do your research to compare different MMFs and pick one that works for you according to your interests and preferences.

You will need to fill out the application form (Most of them are online & you can find them on their websites)

When it comes to money market funds, you have choices. They are plentiful at brokerage houses and mutual fund companies—any free cash in your accounts might automatically go into a money market fund.

However, before investing in a money market fund (or any other fund), read the fund’s prospectus carefully. This disclosure document explains some of the risks, fees, minimums, and other features of each fund.

Requirements:

1. Be at least 18 years of age
2. National ID or Passport
3. KRA pin
4. Bank account details