EDITOR'S NOTE: This article has been updated with the August 2023 performance of the Money Market Funds in Kenya and will be updated with each subsequent month's performance as the data becomes available.
If you are looking for a place to keep your savings and earn above-inflation-level interest while still being able to withdraw your money whenever you need it, Money Market Funds (MMFs) must have interested you.
They generally offer better returns than savings accounts offered by commercial banks in Kenya. If you are keeping money in a savings account in Kenya, you will earn from as low as 1% per annum to a maximum of 7% per annum.
While most savings accounts have withdrawal limits (typically with penalties), you can generally withdraw your money instantly at a branch during working hours.
The other popular option to keep your savings is in Sacco deposits where for many Saccos you can earn at least 10% in returns per annum. However, if you need to withdraw your Sacco deposits, for most Saccos, you have to give at least two months of notice.
Money Market Funds (MMFs) offer the best of both worlds. You can enjoy interest rates above the annual inflation rate and also can quickly access your savings whenever you need the money with no penalties charged or lengthy notices.
This has made Money Market Funds one of the most popular short-term investment options where people can stash, especially, their emergency savings - earn some decent interest and access their money fairly quickly during emergencies.
A money market fund (MMF) is a pool of money managed by a professional fund manager (mutual fund) that invests in highly liquid assets such as short-term debt instruments, cash, and cash equivalents. As such an MMF is also referred to as a money market mutual fund.
The fund manager pools funds from thousands of investors who have a common investment objective and invests the funds in bonds, treasury bills, equities, money market instruments, and other securities. You are paid a share of the profits the invested funds make that constitutes the proportion of the fund that you own.
MMFs are designed to earn investors a steady interest income while limiting investors’ exposure to losses such as from market, credit, and liquidity risks. Generally, Money Market Funds are considered very low-risk investments.
MMFs are regulated by the Capital Markets Authority (CMA).
Read Also: Saccos Vs MMFs: Which Should You Choose?
A money market fund's principal goal is to limit risk and reduce uncertainty by investing in short-term assets.
Money market funds are usually only permitted to invest in low-risk products such as government bonds and commercial paper.
Many people find money market funds appealing for a number of reasons. Let's examine below the advantages they have over other types of investments in more detail.
Easy accessibility - One of the key advantages of having this account is its liquidity without a maturity date. With this account, you can easily access your money for any purpose. Transactions can be done smoothly as long as they do not exceed your account's transaction limit. As a result, a money market account is one of the most suitable places for stashing your emergency funds.
Higher interest rates - Your MMF savings will most likely generate higher returns than other vehicles with the same level of risk. As an investor, you are guaranteed attractive returns ranging from 7% to 10%, which are higher than those offered by bank deposits. MMFs also allow members to reinvest their interests in order to profit from compound interest.
Transparency: When fees are debited from your account, MMF accounts make them transparent. In most cases, there are no expenses associated with running an MMF account.
Low-Risk and Safe Investment: A money market fund is an excellent tool for protecting your investment while also making money at a lower risk.
Here is a list of Kenya’s top-15 performing MMFs, and their average daily yields for the month of August.
Money market funds are appropriate for investors with low-risk tolerance. As an investor, you should look for funds with a proven track record and a constant growth rate.
To making savvy investments!