Treasury bills, unit trusts could be what you need

I am a university student expecting to graduate in December 2016. Currently, I earn Sh20,000 on average every month from side hustles and online jobs besides the pocket money I get from my parents.

I would like to start an IT business after completing my degree. How can I invest this money in order to earn good interest since I know putting it in the bank will tempt me to use it? Is it wise to start the business while I am still in school?

— Dennis, Nairobi

Dennis, it is a good thing that you have embraced the spirit of saving and raising money at an early age.

Saving requires a lot of sacrifice and the ability to align your money with a particular goal is equally important. Given your circumstances, there are a number of ways you could build your savings into considerable amounts by the time you are graduating.

First, you could invest the money directly in interest-earning securities like Treasury bills, which mature after three months, six months, or one year, with a minimum amount of Sh100,000.

You cannot access the funds before the maturity period, which fits well into your objective. You can get more information on how to invest in Treasury bills from the Central Bank of Kenya website.

Second, you could invest indirectly through unit trusts, which pool resources from many individuals and channel them into various types of investments, including interest-earnings assets.

YOUR CONVENIENCE

There are different types of unit trusts, but in your case, a money market fund is recommended. One of the advantages of using a unit trust is that it allows you to start investing with reasonable amounts of money and to top up your contributions at your convenience, while still earning competitive returns.

Unit trusts also spare you the hustle of having to understand and manage the technicalities of the various investment options available since this is done on your behalf by professionals. This would be a more suitable option, given the fact that you are a full-time student and your income is currently not regular.

On the issue of your business investment of choice — the IT industry — note that it is broad and you need to narrow down on which line you would like to pursue and, more importantly, why?

As a rule of thumb, you will need to undertake a feasibility study. This will guide you on whether you should move forward with your idea, refine it, or scrap it altogether and go back to the drawing board.

The research will also save you from committing time, money, and resources to an idea that may not eventually work as was intended and in some cases, result in frustration and wastage of resources.

A market study acts as a predecessor to drafting a business plan, which is the blueprint on how the business would run.

FEEDBACK

Finally, conduct extensive research on the industry so as to understand the pros and cons you may encounter. This will open your eyes to new possibilities, opportunities, and solutions you might never have otherwise considered and the feedback you get would be helpful in identifying any untapped opportunity.

Anne Maina, research analyst, Zimele Research. Write to: [email protected]

NEXT WEEK'S QUESTION

Hello Anne. My name is Nyale, 42 years old civil servant earning a net salary of Sh35,200 a month. I have several loans which deduct a total of Sh38,987 every month.

I acquired a plot of land in one of the major towns four years ago. The plot is in front of a primary school and the neighbourhood has residential houses.

In the next one year, I plan to acquire Sh1.5 million bank loan to construct a storey guest house (not a bar) at the plot. How many single units can this money put up?

What are the potential hurdles in having this kind of premises in this neighbourhood? Are there cheaper loans available for this kind of investment?