Investment Schemes in Kenya

What Are Collective Investment Schemes?

A collective investment scheme is essentially a pool of funds collected from many investors to invest in stocks, bonds, money market instruments, and other assets. These schemes are managed by professional fund managers who make investment decisions on behalf of the investors. The value of an investor’s stake in the CIS is determined by the performance of the underlying assets.

The advantages of investing in CIS include:

• Diversification: By pooling funds, CIS can invest in a wide array of assets, reducing the risk associated with holding a few investments.
• Professional Management: Fund managers possess the expertise and resources to analyze market trends and make informed investment choices.
• Accessibility: Many CIS require relatively low minimum investment amounts, making them accessible to a broad range of investors.
• Liquidity: Investors can typically redeem their units within a few business days, offering greater flexibility compared to less liquid investments like real estate.

Why Are CIS Popular in Kenya?

Several factors contribute to the increasing appeal of CIS in Kenya:

• Growing Middle Class: Kenya’s expanding middle class seeks avenues to grow their wealth beyond traditional savings accounts.
• Regulatory Oversight: The Capital Markets Authority (CMA) plays a crucial role in regulating CIS, ensuring transparency and investor protection, which in turn boosts investor confidence.
• High Liquidity: Compared to other investment options, such as property or fixed deposits, CIS offer relatively high liquidity, allowing investors to access their funds when needed.
• Competitive Returns: CIS often provide higher returns than traditional savings accounts, making them an attractive option for those looking to grow their wealth. For a deeper dive, consider exploring the top money market funds in Kenya.

Market Leaders by AUM

Based on data as of December 31, 2024, here’s a snapshot of the market share of the leading CIS in Kenya:

Key Insights from the Rankings

• CIC Unit Trust Scheme’s Dominance: With an AUM of Ksh 82.497 billion, CIC Unit Trust Scheme holds a commanding 21% of the market share. This success can be attributed to its diversified investment portfolios, consistent returns, and strong brand reputation among Kenyan investors.
• Sanlam’s Impressive Growth: Sanlam Unit Trust Scheme showcased remarkable growth, increasing its AUM by 34% to reach Ksh 62.749 billion. This growth indicates Sanlam’s ability to attract new investors and effectively manage its existing portfolios.
• Emerging Players: Mansa X Special Fund, with an AUM of Ksh 41.697 billion, is an emerging player making significant strides in the market. Its innovative investment strategies and focus on specific sectors have contributed to its increased market presence.
• ABSA Unit Trust Scheme Rise: ABSA Unit Trust Scheme also rose by 18%
• Taifa Unit Trust Scheme Rise: Taifa Unit Trust Scheme rose by 342%

Investment Portfolio Composition

The composition of a CIS’s investment portfolio is a critical factor influencing its performance. Funds that allocate a significant portion of their assets to equities tend to achieve higher returns during bullish market conditions. Conversely, those with a higher allocation to fixed-income securities, such as bonds, offer greater stability during market downturns.

Money market funds have also gained popularity in Kenya due to their relatively low risk and high liquidity. These funds invest in short-term debt instruments, making them a safe haven during uncertain economic times.

Firm Size and Market Reach

Larger CIS managers, such as CIC Unit Trust Scheme and Sanlam Unit Trust Scheme, benefit from economies of scale. Their substantial AUM allows them to negotiate lower transaction fees, diversify their portfolios more effectively, and invest in sophisticated research and technology. Additionally, their extensive branch networks and marketing capabilities enable them to reach a broader investor base.

Regulatory Compliance

The regulatory environment plays a vital role in shaping the performance of CIS in Kenya. The CMA’s oversight ensures transparency, accountability, and adherence to best practices, fostering investor confidence and attracting both local and foreign capital. For further reading on regulatory compliance, you might find this guide on top insurance companies in Kenya relevant.

Understanding Annual Rates vs. Net Returns

When evaluating the performance of CIS, it’s essential to consider both the annual rates and the net returns. The annual rate represents the total return earned by the fund before deducting any fees or expenses. In contrast, the net return reflects the actual return received by investors after accounting for all applicable charges, including management fees, trustee fees, and administrative expenses.

Insights for Investors

While funds with higher annual rates may appear more attractive, it’s crucial to focus on net returns, as they provide a more accurate representation of the profitability of the investment. Investors should also compare the fees charged by different funds to ensure they are receiving competitive value.

Growth of Technology Integration

Technology is playing an increasingly significant role in the CIS industry in Kenya. Digital platforms like M-PESA are enabling easier access to investment products, particularly for retail investors. Online dashboards for portfolio tracking, mobile apps for account management, and robo-advisors offering personalized investment recommendations are becoming increasingly common.

Focus on Sustainable Investments

Environmental, social, and governance (ESG) factors are gaining prominence in the Kenyan investment landscape. Investors are increasingly seeking out CIS that prioritize sustainable business practices, promote social responsibility, and adhere to ethical governance standards. This trend is driven by a growing awareness of the link between responsible investing and long-term financial performance.

Key Factors to Consider

Selecting the right CIS requires careful consideration of several factors:

• Fund Reputation: Research the fund manager’s track record, investment philosophy, and transparency practices.
• Investment Goals: Determine your investment objectives, risk tolerance, and time horizon.
• Short-term liquidity needs: Money market funds are ideal.
• Long-term growth: Equity-heavy portfolios offer greater potential returns.
• Fees: Compare management fees, trustee fees, and other expenses across different funds to maximize net returns.
• Investment Options: What investment choices can you make to earn well? What are the fees?
• Historical Rates: Do your due diligence about the fund by checking for historical rate
• Liquidity: What are the options of withdrawing your funds?
• Terms: What are the underlying fine print terms for joining?

Practical Tips for Investors

• Start Small: Begin with funds offering low minimum investments to gain experience and build confidence.
• Diversify: Allocate your investments across different CIS to reduce risk.
• Regularly Review: Monitor your fund’s performance and adjust your portfolio as needed to align with changing financial goals.
• Seek Professional Advice: Consult with a financial advisor to receive personalized recommendations based on your individual circumstances.

What is the minimum investment amount for CIS?

Most funds require as little as Kshs. 1,000, making them accessible to many Kenyans. Some funds even go lower.

How do I withdraw my money from a CIS?

Withdrawals typically take between one and three business days, depending on the fund manager. Many fund managers now offer same-day or next-day withdrawals for added convenience.

How are CIS taxed in Kenya?

Interest income earned from money market funds and fixed-income funds is subject to withholding tax at a rate of 15%. Capital gains tax is not applicable to CIS investments.