Kenya Investment Ecosystems: What You Need To Know before you save

A few years ago, most Kenyans didn’t go further than banks when looking for safe options to save their money and earn interest.

This is no longer the case. As an investor, you have lots of options for where to put your money.

However, when it comes to increasing the efficiency of your investment, time, the available money to invest and your tolerance for risk are important factors to put into consideration.

Consider how long you have before you’ll need to get the money you’re investing back. For instance, if you need to spend your money next month, then you’ll invest it differently than if you have 10 years before you expect to need it.

Most people in business cite unit trusts and government papers as the most preferred means to invest their earnings. When investing in government securities and unit trusts, it is important to understand their features and benefits.

Government securities consist of treasury bills and treasury bonds and are used by the national treasury to borrow money for budgetary requirements. Treasury bills are short term with maturities of 91 days, 182 days and 364 days.

Treasury bonds are a medium- to long-term investment that typically offers interest payments every six months with repayment periods of between 1-30 years. Interest varies with the duration of the bonds and the amount issued.

Most Treasury bonds in Kenya are fixed rate, meaning that the interest rate determined at auction is locked in for the entire life of the bond. This makes Treasury bonds a predictable, long-term source of income. This bond is the ideal choice for taxpayers and senior citizens searching for a fixed income.

Both treasury bills and bonds are low risk investments since the government is considered to be a sound borrower. Minimum amounts required are Sh100,000 for treasury bills and Sh50,000 for treasury bonds. The Kenyan treasury bonds offer quarterly, semi-annual, or annual T-bonds.

In addition, a preference for money market funds (MMFs) as short-term investment vehicles is emerging. In Kenya, MMFs rival banking options by offering high returns, fund protection and the ability to withdraw one’s funds and make investment top-ups anytime.

In August 2019, the weighted average growth in assets under management (AUM) for money market funds for the H1’2019 results, which stood at 28.2%, compared to banks’ deposit growth that stood at 12.6% for the same period.

Therefore, prior to investing, you require good knowledge of the money market to get the best out of these investments.