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Do you plan to invest? Why unit trusts are worth exploring

Tuesday February 16 2016

Shop around for the unit trusts that are most appropriate to you, given your savings and the required time period.

Interestingly, last year, some of the unit trusts currently on offer gave investors better returns than the average yields offered by Treasury bills. FILE  Photo | FILE

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Although local investors had hoped for a turn in market fortunes this year, many have continued to endure a bear run that has been ravaging the local equities market.

Consequently, many new and small investors have been forced to hold back their money out of fear that they might suffer loses in the volatile market.

However, despite the sluggish Nairobi Securities Exchange (NSE), small and new investors can still safely put their money in other investment channels. The unit trust market is one of these avenues.

Mr Robert Ochieng’, a research analyst at Relic Capital, says unit funds are a good nest especially for putting money for short-term gains. “They will give investors higher returns in comparison to bank savings and fixed deposit account interests,” he says.

The Capital Markets Authority (CMA) notes that one of the key benefits of investing in unit trusts is the ease in buying and selling. “Unlike investments in shares of companies where prices and opportunities to transact depend on the supply and demand at that time, unit trusts provide investors with ease in conducting transactions,” says CMA in a market report on unit trusts.

Interestingly, last year, some of the unit trusts currently on offer gave investors better returns than the average yields offered by Treasury bills.


“In the past year, unit trusts such as Pan African Asset Management’s Pesa Fund and Gencap from Genghis Capital Investment Bank returned more than 18 per cent. These were higher returns than the average Treasury Bills (T-bills) returns for 2015,” says Mr Ochieng’. “Unfortunately, many small or new investors remained unaware.”

Although T-bills are currently returning good yields of about 14 per cent, they normally average between 9 and 12 per cent.

Once you pool your money along with other investors in the market, your money will be invested by your preferred fund manager in numerous financial assets which include bonds, equities and cash in local and international markets.

Currently, Zimele Asset Management is offering unit trusts with a minimum investment plan of Sh250 while Genghis Capital Ltd is offering investment plans with a minimum of Sh500. Zimele Unit Trust runs the money market and balanced funds.


According to a report on unit funds and yields at Zimele last week, the Money Market Fund is attracting 11 per cent yield per year while the Personal Pension Fund is generating a 12.5 per cent yield.

At Old Mutual, the minimum investors can pool into the Equity Fund and Balanced Fund is Sh50,000. However, investors with limited capital can invest a minimum of Sh1,000 in the Money Market Fund at Old Mutual.

By October last year, Equity Investment Bank (EIB) had received Sh2.04 billion funds under its management within three months of running unit trust products. The investment bank is offering an entry premium of Sh1,000 for both Money Market and Balanced Funds.

With its Money Market Fund scheme standing at Sh1.95 billion, EIB offered yields of between 10 and 15 per cent in the short term by the last quarter of 2015. On the other hand, the Balanced Fund offered long-term value with yields of between 15 and 18 per cent with investments standing at Sh5.2 million by October 2015.

Additionally, once you invest in unit trusts, your fund manager will offer you an investment cushion from which you will be able to make money without the strain of physically tracking your investment portfolio on a daily basis.

Mr Ochieng’ notes that investors who pool their money in an investment fund can get their funds back within three days upon request. Strikingly, according to Mr Mungai Kihanya, a personal and corporate management trainer on unit trusts, your interests will be compounded on a monthly basis.

“This will see you earn interest upon interest every month, unlike bank saving accounts which often times compound interest after three months,” he says.
Mr Kihanya adds that if for you have invested Sh100,000 in a fund that reports a daily rate of 9 per cent, your investment will give you a monthly interest of Sh741 compared to the Sh150 bank interest that a similar amount may give you.

According to a report on unit trusts by African Alliance, if you pool your money in an equity fund, the fund will invest your money predominantly in equities, with at least 80 per cent being invested in the local bourse.

Further, the kind of fund you choose to invest in should depend on the level of your appetite for risk. For instance, if you are chasing income and security for your money, you will do well to go for the money market fund or the fixed income fund. However, if your appetite for risk is higher, you may opt for an equity fund.

In the same vein, says a market report by African Alliance, investors seeking both current income and capital growth may go for a balanced fund. However, Mr Kihanya recommends that new and small investors put their money in money market funds over the other existing funds.

“I don’t recommend that you put your savings in an equity fund unit trust. It invests money in the stock market and is mainly intended for investors looking to invest for long periods of time such as five to 10 years,” he says.

The growth of unit trusts in the country has been exponential. For instance although in 2001 there were no unit trust schemes, by 2008, the Capital Markets Authority had approved 11 funds.

In early January this year, Apollo Asset Management became the 20th firm to be licensed as a unit trust manager by the Capital Markets Authority. The firm was licensed to sell unit trust funds through money market, balanced fund, an aggressive growth fund, equity fund, bonds and East African fund. These funds will retail at Sh10,000 each.

On the opposite extreme, Dry Associates Ltd announced in January that it is opening a unit trust scheme that will require a minimum investment of Sh1 million. The scheme will send funds through balanced funds, the shilling money market fund and the dollar money market fund.

A report issued by the investment bank in December last year said investors who choose to invest in a fund that buys into domestic government securities will get a return of 15 per cent compared to the 5 per cent interest that investors who choose to go for offshore securities will get.