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Money Markets Funds in Kenya: Features and Key Considerations
Money Management

Money Markets Funds in Kenya: Features and Key Considerations

There are different ways to invest. Investing through Money Market Funds (MMFs) is one of them. Despite the growth in the popularity of these investment vehicles, most people still shy away from engaging since they need to understand them better. 

Here is a breakdown of what makes up an MMF and what you need to consider before investing.

Money Market Fund Features

Before we understand MMF features let us understand what Money Market Funds are. The best analogy for an MMF is, to think of it as a cake. A cake is made up of different ingredients, and we also have different types of cakes. 

A Money Market Fund is an account where investors pool money together and invest in different money market instruments such as commercial papers, treasury bills, treasury bonds, and fixed deposits.

These different instruments are like the different ingredients of a cake. Because depending on how a fund is structured, it will be curated using the mentioned instruments. Then as investors, you get a slice of the cake depending on how much you have put in. By investing in a money market fund you get to own a slice of the fund, which is how you will earn your returns.

Read Also: Saccos vs MMFs: Which One Should I Choose?


Money Market Funds are established for investors who have a low risk appetite, and who want liquidity and stability.

Money Market Funds usually invest in government securities, commercial bonds, and fixed deposits. These are investment instruments that are relatively low risk compared to other investment opportunities in the market. Investing in such low-risk instruments also means low returns hence MMFs are best suited for capital preservation.

Investors who are also looking for highly liquid investment opportunities can also opt for MMFs. Due to the way an MMF is set up including having a stable (Net Asset Value) NAV, MMFs are quite stable investments. Hence investors looking for stability can also consider investing in MMFs.


Money Market Funds invest in low-risk investment instruments. These instruments include:

  • Commercial papers - These are short-term debt instruments offered by companies to finance their short-term cash flow requirements. The maturity of these commercial papers can range between a few days and a year.  
  • Treasury bills (T-bills) - Treasury bills are short-term instruments offered by the government and are sold at a discount. Typically their maturity ranges from a few months to a year. 
  • Treasury Bonds – Treasury bonds are also offered by the government but these are long-term investments where investors earn interest every six months. Their maturity can range from a year to 30 years.
  • Fixed deposits – Fixed deposits are financial instruments that are offered by banks and other financial institutions where the investor can deposit their money for an allotted period and they are guaranteed to earn a given interest on their money.

These are the investments that usually money market funds invest in. There is little volatility with these investments and if there are no major market movements the investor will preserve their capital and grow it above the inflation rate.

Read Also: Where Do I Keep My Savings? Money Market Fund

Risk Profile

Money market fund investors are risk averse. Hence these investments have to be conservative. Government securities reputable companies papers and fixed deposit accounts are conservative investments that fit the MMF risk profile.

That notwithstanding, investors can also lose their money if the fund they invest in is managed poorly. Hence to address this risk funds have the following structure to mitigate the risk of mismanagement.

  • Professional Fund Manager - This is a company registered and regulated by the Capital Markets Authority (CMA). This is the entity responsible for curating investment portfolios and investing the pool money from investors. To curate a fund, the professional fund manager has to adhere to the set objectives of the fund. 
  • Custodian - This is a bank where the pool of money from investors is held. The custodian holds the money until the fund manager makes an investment decision. The bank then releases the amount equivalent to the investment as per the fund policy. The custodian also is regulated and has to be approved by the CMA.
  • Trustees - Trustees are responsible for looking out for the investors' interests. They are set as whistleblowers monitoring the activities of the fund manager and the custodian to ensure no fishy business. In case they suspect any fraud or malpractice they should raise the alarm. The trustee can be a bank or a financial institution. They are chosen by the fund manager but are vetted and approved by the CMA.
  • Auditor - They are in charge of auditing or reviewing the fund's financial statements. These are the statements that investors will use to assess the performance of the fund.

The set structure aims to curtail any malpractice that might jeopardise the investors' money. 

Additionally, there is a regulation in place to mitigate the risk that investors get exposed to. In Kenya, MMFs are regulated and licensed by the CMA. CMA monitors to ensure that investments are made per the law. They do this by ensuring that the Fund Manager, the Custodian, the Trustee, and the Auditor all adhere to government regulations and the policies of the fund.

Read Also: Top Money Market Funds in Kenya

Stable Net Asset Value

A Net Asset Value (NAV) is a stable value that a fund aims to maintain. In Kenya, the NAV is usually set at Sh1. This helps track the performance of the fund because any gains made that raise the value of investor shares more than one is paid out to investors as dividends. This makes it easy to track the performance of the fund.


MMFs invest in short-term securities that provide investors with the liquidity they desire. These short-term investments can also be easily liquidated for cash allowing investors to easily come into a fund and exit when they need to.


MMF payouts are made in terms of dividends. The fund manager invests and the earnings from the investments are distributed to the investors through dividends depending on the investor's shareholding. The decision as to how much to be paid out is determined by the gains above NAV. 

Money Market Funds Key Considerations

Before you invest in an MMF here are some considerations that you should make.


It is important that you pay attention to the fund's yield. Yield in the income generated by the MMF which is usually expressed as a percentage per annum. Assessing yield is vital since you want to invest in funds that align with your investment objectives and goals. Also, the higher the return, the more risk exposure the fund might have. Ensure that the MMF you put your money into matches your risk appetite.

Expense Ratios

The fund is managed by a professional and has other operating costs such as licensing to cover. Hence every fund has an expense ratio which is charged to the investor's net assets. Usually, this expense ratio is expressed as a percentage. A low net ratio is much better because it leaves more for investors to take home. 

Tax Implications

It is also important that you understand the tax implications of a given MMF before you invest. Some MMFs have tax obligations while others do not. This exposure to tax implications depends on the type of investment instruments the fund has invested in. It is prudent that as an investor you invest in tax-efficient investments.

Read Also: 10 Reasons to Start Saving Now

Individual vs. Institutional Funds

There are funds that are curated for institutions and others for individuals. Choose the befitting MMF depending on in which capacity you are investing. Institutional funds tend to have lower expense ratios but they also have higher initial investments. Individual funds on the other hand tend to have higher expense ratios but lower initial investments.

Understanding Holdings

Pay attention to the holding that a fund is investing in. Review the fund’s prospectus to understand the portfolio composition, types of securities held, credit quality, and so on.

In addition, study the past performance of the fund paying attention to the returns. Keep track of the fund's performance in the local dailies which they are required to publish by the CMA.

Get to know the minimum investment you need to open an account and begin investing with the company. Most MMFs targeted at individuals have a minimum investment of as low as Ksh1,000. 

Moreover, pay attention to the history of the fund to find the consistency of its performance to ascertain if they are stable.

Reinvestment Risk

When as an investor you want to reinvest your money within the same fund, ensure that you do not expose yourself to a lower interest rate. There can be rate movement within the fund, however you should watch out to ensure that you do not lose your investment edge. A low-interest environment may lead to lower leads.

Read Also: Ways to Invest When You Have a Low-risk Tolerance

Wrapping Up

MMFs are a great investment vehicle. However, you have to first understand why you are investing to determine if they are the instrument you want to use. Mark you, they are relatively low risk low return. However, they offer you great flexibility and liquidity. They are also well regulated. 

Make sure you carry out your due diligence exhaustively before investing.

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Stephen Kimani aka KIMSpeaks is a thought leader, speaker, and writer. He is also the Founder of Living the DREAM. He is passionate about learning and teaching ideas that empower people to improve the quality of their lives. You can connect with Kimani on LinkedIn.

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