Despite the harsh economic effects of the Covid-19 pandemic, Kenya is still regarded as a 'hotbed' of investment opportunities.
Agriculture and agribusiness, manufacturing, tourism, infrastructure development, energy, information and communications technology, and financial services are just a few of the industries offering investment prospects in Kenya.
Consider the various types of investments as tools that can assist you in reaching your financial objectives.
Each broad investment type, from bank products to stocks and bonds, has its own general set of features, and risk factors.
The term "investment" has become muddled as a result of overuse. There are three basic types of investment; Ownership Investments, Lending Investments, and cash equivalents.
This is the most popular form of investment in Kenya and it is considered as the riskiest yet most profitable class of investment.
Ownership investments include stocks, real estate, and precious metals. The buyer anticipates that their worth will rise over time.
Investing in stocks has been rising in popularity in Kenya over the last decades.
According to Forbes magazine, Baloobhai Patel - founder of Transworld Safaris - is one of the richest stockholders in Kenya’s capital markets. His shares in publicly listed Kenyan companies alone are worth over $45 million (Ksh4.9 billion).
Entrepreneurship is one of the most difficult investments to make because it involves more than just cash. As a result, it is an ownership investment with enormous potential returns.
Over the last three decades, governments' interest in entrepreneurship and small business has grown. As such, various incentives have been put in place to promote entrepreneurship.
The Senate proposed the Start-up Bill -sponsored by Nairobi Senator Johnson Sakaja, for introduction to the Senate on September 14, 2020, which piqued the interest of Kenyan entrepreneurs and investors with an eye on this region.
The Bill authorizes the creation of a Credit Guarantee Scheme to provide accessible financial assistance and to act as a guarantee for investors in start-ups.
Additionally, under the proposed Bill, registration fees on intellectual property rights would be eliminated, start-up scholarships and funds would be introduced as well as the ease with which start-ups can register and dissolve themselves in the event that their product does not meet the needs of the market.
With this in mind, buying or leasing a farm and going on to engage in producing some of the most profitable crops in the market falls under this type of investment.
As an example, one of the crops that offer the highest return per acre according to Oxfarm Kenya is passion fruit.
Under proper care, the crop produces high yields. In Kenya, a yield of 50,000kg of passion fruit per hectare has been reported.
One kilo of passion fruits costs about Ksh50 in various market places across the country.
Direct marketing, on the other hand, allows you to sell at a higher price. It is possible to earn more than Ksh2 million from one hectare, which is more than many other farming enterprises earn.
Lending money is another type of investment. The risks are generally lower and as a result, the rewards are fairly modest.
A popular example in Kenya is a regular savings account.
In essence, the investor is lending money to the bank. The bank will pay interest to the account holder and make a profit by lending the remaining funds to businesses at a higher interest rate.
The current rate of return on savings accounts is quite low, but the risk is essentially zero.
Other examples of lending investments are government bonds and securities which are explained in detail here.
These are basically investments that are "as good as cash" - they can be changed to cash fast and easily.
This is where money market funds lie. These are fixed income mutual funds with short maturities and low credit risk.
Money market mutual funds are among the low-volatility investment options.
Traders and institutions conduct large-volume transactions at the wholesale level. At the retail level, it includes money market mutual funds bought by individual investors and money market accounts opened by bank customers.
In the money market, one can buy a mutual fund, buy Treasury bills or establish a money market account at their local bank to invest.
Another example is through collective investment schemes. Think of it this way, you and a few other investors contribute money in one account and hand it over to a professional money manager to invest it on your behalf.
The professional money manager then allocates the pool of funds to the 3 Money Market Instruments (Commercial paper, Treasury Bills and Fixed deposits).
The money manager works towards producing capital gains or an income for you as investors.
In Kenya, there are two types of collective investment schemes. Mutual funds and Unit trusts
Mutual funds are defined as "investment vehicles comprised of a pool of money collected from many investors and governed by the Company Act.
Unit Trusts on the other hand are defined as “investment vehicles comprised of a pool of money collected from many investors and governed by the Trustee Act.
Money market funds in Kenya offer anywhere between 4% and 10% returns annually.