In a recent development in the investment landscape, investors have overwhelmingly chosen money market funds as their preferred investment vehicle, allocating a staggering 74.7 percent of their funds to this asset class. This trend has placed money market funds firmly ahead of other investment options, such as equity funds that focus on listed stocks.
The surge in popularity of money market funds, which primarily invest in fixed bank deposits and maintain substantial cash holdings, can be attributed to the appealing stability of their returns. These returns consistently hover around an impressive 10 percent per annum, making them an attractive choice for risk-conscious investors.
Data obtained from the Capital Markets Authority (CMA) reveals that money market funds have amassed a significant amount of assets, holding a total of Sh131.5 billion. This substantial figure accounts for nearly three-quarters of the total assets within the investment landscape, which collectively stand at Sh175.9 billion.
A more detailed analysis of the CMA data underscores the composition of money market funds’ investments, which predominantly include cash, demand deposits, and fixed deposits. This strategic allocation serves the interests of both investors and fund managers. Fund managers benefit from a fixed return on the pooled investments, which they distribute to clients.
On the other hand, investors in money market funds enjoy easy access to liquidity, as their investments are channeled into highly liquid assets. Demand and term deposits, in particular, can be readily converted into cash, providing clients with flexibility and convenience.
Fixed income investments, in contrast, represent a more modest 17.1 percent of the market share, amounting to Sh30.1 billion as of June. This investment class primarily focuses on debt securities issued by the government.
Equity funds are currently holding assets valued at a more modest Sh2.6 billion by unit trusts, representing just two percent of the market. This limited interest in the local stock market can be attributed to the ongoing underperformance of the stock exchange, which has left investors cautious.
Balanced funds, with assets totaling Sh1.7 billion, make up one percent of the total holdings. These funds strategically allocate investments across various asset classes, including cash, fixed income, and equities.
As of June, unit trusts managed Sh9.8 billion in various other fund types, such as managed funds, enhanced high-yield funds, dollar-denominated funds, and growth funds. This diversification showcases the adaptability of unit trusts in meeting investors’ diverse needs.
In conclusion, the dominance of money market funds in the investment landscape underscores the importance of stability and reliable returns for today’s investors. While other investment options like equities and fixed income remain relevant, money market funds have undoubtedly emerged as the favored choice among investors seeking steady and secure growth for their portfolios.
Photo Source: Google
By: Delino Gayweh
Serrari Financial Analyst
14th September, 2023
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