Mutual Funds in Kenya: What They Are, 4 Types, Benefits, Risks, and How to Invest

Investing in mutual funds in Kenya is a popular choice for many Kenyans looking to grow their wealth while managing risk. Mutual funds offer a way to pool your money with other investors and benefit from professional management and diversification. In this blog post, we’ll explore what mutual funds are in Kenya. What they are, the different types available, their benefits and risks, and how to invest in them.

What are mutual funds?

Mutual funds are investment vehicles that pool money from multiple investors to create a diversified portfolio of assets, such as stocks, bonds, and other securities. Managed by professional fund managers, these funds offer investors a chance to own a share of a broad range of investments without needing to select each security individually. Each investor buys shares in the fund, representing partial ownership of the fund’s portfolio and its income.

Types of Mutual Funds in Kenya

1. Equity Funds: These funds invest primarily in stocks. They can focus on investment strategies like growth, value, or income. Equity funds might invest globally, regionally, or within a particular country, depending on their objectives.
2. Bond Funds: Also known as fixed-income funds, these invest mainly in government or corporate bonds. They provide income through interest payments and are generally considered less volatile than stocks. However, the risk and return can vary based on the type of bonds held.
3. Money Market Funds: These funds invest in short-term, high-quality debt instruments such as Treasury bills and certificates of deposit. They are known for their stability and low risk, making them a safer investment compared to equity and bond funds.
4. Hybrid Funds: Combining stocks, bonds, and sometimes money market instruments, hybrid funds offer a balanced approach. They diversify asset classes and can be adjusted according to the fund’s strategy or market conditions.

Benefits of investing in mutual funds in Kenya

1. Diversification: Investing in a mutual fund allows you to hold a variety of securities, which helps spread risk and reduce the impact of any single investment’s poor performance.
2. Professional Management: Fund managers use their expertise to select and manage investments, saving you the time and effort of researching and managing your portfolio.
3. Liquidity: Most mutual funds offer the ability to redeem shares at any time, providing flexibility and access to your money when needed.
4. Affordability: Many mutual funds have low minimum investment requirements, making them accessible to a wide range of investors.

Risks of investing in mutual funds in Kenya

1. Market Risk: The value of mutual fund investments can fluctuate with market conditions. The performance of the fund can be affected by broader market movements.
2. Currency Risk: For funds that invest in international securities, fluctuations in currency exchange rates can impact the value of the investments.
3. Investment Objective Risk: There is no guarantee that a mutual fund will achieve its investment goals. The performance may not align with your financial objectives.
4. Liquidity Risk: While mutual funds are generally liquid, some funds may have specific redemption policies or fees that could affect your ability to access your money quickly.

How to invest in mutual funds in Kenya

To invest in mutual funds, you can purchase shares directly from the fund company or through a broker. It’s important to review the fund’s prospectus to understand its objectives, risks, and fees. The prospectus provides detailed information on the fund’s investment strategy and past performance.

Popular mutual funds available in Kenya

1. Nairobi Securities Exchange (NSE) Mutual Funds

• NSE 25 Index Fund: Tracks the performance of the top 25 companies listed on the Nairobi Securities Exchange (NSE), providing investors with exposure to major companies in Kenya.

2. Stanbic Kenya Unit Trusts

• Stanbic Equity Fund: Focuses on investing in a diversified portfolio of equities, primarily Kenyan stocks, aiming for long-term capital growth.
• Stanbic Fixed Income Fund: Invests in government and corporate bonds, offering stable returns and income for risk-averse investors.

3. Co-op Trust Investment Services

• Co-op Trust Balanced Fund: Combines equities and fixed-income securities to balance risk and return, catering to investors looking for moderate growth and income.
• Co-op Trust Money Market Fund: Invests in short-term, high-quality debt instruments, providing liquidity and capital preservation.

4. Old Mutual Unit Trusts

• Old Mutual Kenya Growth Fund: Invests in a diversified portfolio of stocks and bonds, aiming for capital appreciation over the long term.
• Old Mutual Kenya Income Fund: Focuses on fixed-income securities, providing regular income and lower volatility.

5. Amana Capital

• Amana Capital Equity Fund: Offers exposure to a range of Kenyan and regional equities, aiming for high returns through stock investments.
• Amana Capital Fixed Income Fund: Invests in high-quality debt instruments for stable returns and capital preservation.

6. I&M Bank Unit Trusts

• I&M Bank Equity Fund: Focuses on investing in a diverse portfolio of stocks, aiming for high returns through equity investments.
• I&M Bank Fixed Income Fund: Invests in bonds and other fixed-income securities, offering regular income and lower risk.

7. Standard Chartered Mutual Funds

• Standard Chartered Equity Fund: Invests in a diverse range of Kenyan and regional stocks, aiming to provide long-term capital growth through equity investments.
• Standard Chartered Bond Fund: Focuses on investing in high-quality bonds, including government and corporate bonds, to provide stable income with lower risk.
• Standard Chartered Money Market Fund: Invests in short-term, high-quality money market instruments, offering liquidity and capital preservation for conservative investors.
• Standard Chartered Balanced Fund: Combines equities, bonds, and money market instruments to balance risk and return, suitable for investors seeking a mix of growth and income.

Each of these mutual funds offers unique investment opportunities and risk profiles, allowing investors to select funds that best align with their financial objectives and risk tolerance. It’s crucial to review the prospectus and performance history of each fund before making an investment decision.

Understanding mutual funds fees

Mutual funds charge various fees that can impact your returns. Common fees include:

• Management Fees: Paid to the fund manager for overseeing the fund’s investments.
• Entry Fees: Also known as sales charges, these are deducted at the time of purchase.
• Exit Fees: Charged when redeeming shares.

Understanding these fees is crucial, as they can affect the overall performance of your investment. Compare fees across different funds to make an informed decision.

Avoiding fraud when investing in mutual funds in Kenya

Ensure that any mutual fund you consider is registered with relevant regulatory authorities. Always read the prospectus and regular shareholder reports to verify the fund’s legitimacy and performance.

The difference between a stock and a mutual fund

The primary difference between stocks and mutual funds lies in their structure and risk profile. When you buy a stock, you are investing directly in a single company, which means you bear the risk associated with that company’s performance. In contrast, a mutual fund pools money from multiple investors to create a diversified portfolio, reducing the risk associated with individual stocks. Additionally, mutual funds are managed by professionals, whereas with stocks, you must make individual investment decisions.

Read also: How to Invest in the Stock Market in Kenya: 5 Easy Steps for Beginners.

Mutual funds vs. index funds

Mutual funds are actively managed by professionals who select investments to meet the fund’s objectives. Index funds, a subset of mutual funds, passively track a specific market index, such as the S&P 500. Index funds typically have lower fees due to their passive management style and offer broad market exposure, making them a cost-effective investment option.

Related: How to Invest in Index Funds in Kenya: Ultimate Beginners Guide

Are mutual funds safe investments?

While mutual funds offer diversification and professional management, they are not without risk. The value of mutual fund investments can fluctuate, and there is no guarantee of returns. It’s important to understand the specific risks associated with each fund and ensure it aligns with your investment goals and risk tolerance.

Can I withdraw money from a mutual fund at any time?

Most mutual funds allow you to redeem shares at any time, providing liquidity. The redemption will be processed at the current net asset value (NAV) of the shares, minus any applicable fees. However, some funds may have specific redemption policies or charges, so it’s essential to review these details before investing.

Do you make money in mutual funds?

Mutual funds can generate returns through dividends, capital gains, and an increase in NAV. However, the actual returns depend on the fund’s performance and the underlying assets. While mutual funds can be a profitable investment, it’s crucial to select funds that match your investment objectives and monitor their performance regularly.

Is a mutual fund a good investment?

Whether a mutual fund is a good investment depends on your financial goals, risk tolerance, and investment horizon. Mutual funds can be a suitable choice for investors seeking diversification, professional management, and liquidity. They offer a range of options to meet different investment strategies and risk profiles. However, it’s important to evaluate individual funds based on their performance history, fees, and alignment with your investment objectives. Conduct thorough research and consider consulting with a financial advisor to determine if mutual funds fit into your overall investment strategy.

The bottom line

Mutual funds offer a convenient way to invest in a diversified portfolio with professional management. They provide flexibility, affordability, and growth potential, but come with risks and costs that need to be carefully considered. By understanding the different types of mutual funds, their benefits, and their risks, you can make informed investment decisions and work towards achieving your financial goals.

Read Also: How to Invest in Real Estate in Kenya: A 7-Step Master Guide