As a small business owner, student or budding investor, chances are that in one way or another you are involved in a savings scheme. Probably you are saving through a regular bank account, mobile phone account or chama account.
However, as you might have noticed, leaving your money to sit somewhere without gaining interest isn’t a wise thing to do.
We would like to introduce you to the idea of unit trusts – a passive method of wealth creation that has been in Kenya for the last 13 years.
-What are unit trusts?
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Unit Trusts were first introduced in Kenya in December 2001 under the watch of the Capital Markets Authority (CMA). When you enroll for a unit trust investment agreement you accept to pool resources together with other small investors and put it under a fund manager who will in turn invest it on your behalf. Let’s take an example:
Mr Juma approaches XXXX Investment Bank to invest Ksh10,000 ($125) in their Money Market Fund (an example of unit trust). XXXX Investment Bank will take Juma’s money and combine it with what other investors bring to the same fund.
So let’s say the total pooled fund amounts to Ksh10,000,000 ($12,500). The Fund Manager (an expert from XXXX Investment Bank) will then go to the Money Markets and make investment decisions on behalf of Juma and the other investors.
Juma will still have taken a risk. If the money market performs badly and the fund manager makes some loses, then Juma will have to absorb the loss. If things go well and the fund manager generates good returns, then Juma and other investors will enjoy passive income from their money.
Unit trusts are a simple avenue to access stock market and money market investments. Like, in the example above, Juma would have chosen to invest directly in the money market.
But because he lacks the expertise and skills required to succeed, he opted to invest under a unit trust so that a fund manager does the manual/risky job on his behalf (for a small commission of course).
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-Roughly how much return on investment can a small investor expect?
The rate of return offered by a unit trust fund depends on factors such as:
- Returns from the market
- Types of assets within the category of unit trust you opt for
- Management skills of the fund manager
Also note that, historical performance does not in any way predetermine future performance of the fund. In the past 3 years, most Unit Trust arrangements in Kenya have yielded a range of 10% to 20% return on investment.
-How can I get started?
Unlike in the past when you needed a minimum of Ksh50,000 to be accepted in a Unit Trust arrangement, nowadays even the Mama Mboga in the streets of Korogocho slums can start her investment journey with a measly Ksh500.
Better still, most investment companies have embraced mobile money transfer meaning that you can easily channel your funds to your unit trust account even on a daily basis. Examples of companies that offer unit trusts in Kenya include:
- Genghis Capital
- Old Mutual
- Britam
Are unit trusts ideal for me?
Unit Trusts are ideal for anyone who wants to access full-time professional management of their money. Simply put, anyone who is tired of keeping their money sitting in the bank without much returns. Chamas, small holders, students, people with busy careers etc can benefit.
Who unit trusts aren’t for?
- Not good for people who want to invest for a short period (i.e less than 1 year)
- Not good for people who fear taking risks
- Not good for people who suffer from lottery mentality (or pyramid scheme mentality)
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Your thoughts
Tell us what you think about Unit Trusts, do they sound like the investment path you’ve been dreaming about? We would like to hear from you.
