Unit trusts have raised their annual returns to keep up with elevated rates on government treasuries and bank fixed deposits as they look to protect their ability to attract new investment flows.
Analysis of annual rates on shilling-denominated money market funds shows returns falling between 11.6 percent and 15.96 percent as at December 15—with an average of 13.5 percent for the 14 funds reviewed.
A year ago, the funds were paying annual returns of between eight percent and 9.5 percent to investors.
Their published returns are net of all fees and charges except withholding tax, which is levied at 15 percent of the interest earned —similar to Treasury bills.
The movement of the returns has mirrored that of Treasury bills, which are currently paying investors between 15.77 and 15.92 percent gross of withholding tax across the three tenors of three, six and 12 months. A year ago, the T-bills offered an average return of between 9.3 and 10.3 percent across the three securities.
Three fund managers out of the 14 analysed —Nabo, Cytonn, GenAfrica and Lofty Corban— are offering a return of at least 15 percent on their money market funds products, keeping them at near par with T-bills.
Bank deposit rates have also gone up, averaging 8.64 percent in September 2023 from 6.82 percent a year earlier, as per latest Central Bank of Kenya statistics.
Unit trusts invest the bulk of their assets under management through money market funds, which are primarily invested in Treasury bills and bank deposits. They however have to compete with direct investments into these assets by increasingly sophisticated investors, as well as other alternatives such as equities and offshore funds.
By the end of June, as per latest data from the Capital Markets Authority (CMA), unit trusts held Sh175.97 billion in assets under management, out of which 75 percent or Sh131.6 billion was in money market funds.
Fixed deposits accounted for the biggest share of the 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 were third at Sh9.29 billion (5.3 percent), while listed and unlisted securities accounted for 3.4 and 2.8 percent respectively at Sh6.03 billion and Sh4.91 billion.
Other investments such as offshore assets, immovable property and placements with fellow collective investment schemes accounted for less than one percent each.
The higher rates have helped both the unit trusts and government securities beat inflation, which retreated to 6.8 percent in November 2023 from 9.6 percent in October 2022.
High inflation has the effect of eroding the value of cash holdings and returns from investments and is therefore a factor investors consider before committing to an asset.
With as little as Sh1,000, Kenyans can put their money into unit trusts, for investments overseen by a licensed fund manager and custodian as well as a trustee. These are small savers representing the broader economy and a wide range of aspiring individuals who lack the sophistication to invest in capital markets and so elect unit trusts to do so on their behalf.
