The Capital Markets Authority (CMA) has moved to tighten the reporting and disclosure procedures for fund managers with new guidelines that will give investors a clearer picture of the returns by the schemes.
The CMA said it has over time noted inconsistencies in performance measurement and presentation in the Collective Investment Schemes industry, hence the new guidelines were published at end of last month.
Under the enhanced disclose requirements, all fund managers are to show current fee schedule to existing and prospective investors—including all performance-based fees and expenses.
“The fund manager shall report returns that are net of all fees charged against the fund which include transaction costs (cost of buying and selling, investment-brokerage fees, taxes, exchange fees) and administrative cost (audit, legal, custodial, trustee, AGM fees, performance-based fees etc.),”said the CMA in the guidance document.
This now means funds cannot entice investors by dangling a gross return, only to hit them with a disclosure of deductions to net off costs at the time of exit or cashing in.
The collective investment schemes, especially unit trusts, have become popular for those looking for hassle-free investments handled by professionals.
Latest CMA data shows that the total asset base of the 19 active licensed collective schemes amounted to Sh76.1 billion by the end of December 2019, having grown by 24.7 percent from Sh61.04 billion a year earlier.
The CMA also reminded the schemes on the composition of the various products in the unit trust schemes, stipulating that money market funds are to invest only in interest-earning money market instruments which have a maximum weighted average tenor of 13 months.
These include commercial papers, government securities and call deposits.
Equity funds and fixed income funds are required to invest a minimum of 80 percent of their assets under management in stocks and fixed income securities respectively.
Balanced funds, which can invest in a mix of asset classes including money market, equities and fixed income instruments, are allowed a maximum exposure of 60 percent in any of the asset classes within their mix.