In a strategic move to remain competitive and attract new investment flows, unit trusts have raised their annual returns to align with the heightened rates offered on government treasuries and bank fixed deposits. An analysis of annual rates on shilling-denominated money market funds reveals returns ranging from 11.6 percent to 15.96 percent as of December 15, with an average of 13.5 percent across the 14 funds reviewed.
Comparatively, a year ago, these funds were providing annual returns between eight percent and 9.5 percent to investors. The published returns are net of all fees and charges except for withholding tax, which is set at 15 percent of the interest earned, mirroring the treatment of Treasury bills.
The movement in returns closely follows the trend of Treasury bills, currently offering investors between 15.77 and 15.92 percent gross of withholding tax across three tenors (three, six, and 12 months). A year ago, T-bills yielded an average return of between 9.3 and 10.3 percent across the same securities.
Nabo, Cytonn, GenAfrica, and Lofty Corban—are offering a return of at least 15 percent on their money market funds products, positioning them in close competition with T-bills.
Bank deposit rates have also experienced an increase, averaging 8.64 percent in September 2023, up from 6.82 percent a year earlier, according to the latest statistics from the Central Bank of Kenya.
Unit trusts predominantly invest the bulk of their assets under management through money market funds, primarily allocated to Treasury bills and bank deposits. However, they face stiff competition from direct investments by sophisticated investors and alternative options such as equities and offshore funds.
As of the end of June, data from the Capital Markets Authority (CMA) indicates that unit trusts held Sh175.97 billion in assets under management, with 75 percent (Sh131.6 billion) allocated to money market funds. Fixed deposits accounted for the largest share of assets under management at Sh78.14 billion (44.4 percent), followed closely by investments in government securities at Sh75.32 billion (42.8 percent).
Cash and call deposits constituted the third-largest category at Sh9.29 billion (5.3 percent), while listed and unlisted securities accounted for 3.4 percent and 2.8 percent, respectively, at Sh6.03 billion and Sh4.91 billion.
Higher rates have proven beneficial for both unit trusts and government securities in outperforming inflation, which receded to 6.8 percent in November 2023 from 9.6 percent in October 2022. Investors consider inflation when assessing assets, as it can erode the value of cash holdings and returns from investments.
With a minimum investment of Sh1,000, Kenyans can participate in unit trusts, entrusting their funds to licensed fund managers, custodians, and trustees. This appeals to small savers representing the broader economy and individuals seeking exposure to capital markets through the expertise of unit trusts.
By: Delino Gayweh
Serrari Financial Analyst
December 19, 2023
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