FILE
By KINUTHIA MBURU
In Summary
- Investment companies have reviewed the amounts that one can save in trust funds, so potential investors may now find it attractive to put their money in collective investment vehicles — which were for a long time considered to be the preserve of the rich
Experts have lauded the unit trust market as a
noble investment alternative, yet it has often struggled to shake off
the tag that it is meant only for the rich. It also continues to operate
in the shadow of other investment options such as shares and real
estate.
“Unit trusts are not an option for a small
investor like me,” says Mr Joseph Njau, who runs a hardware shop. “I
would rather buy shares that can trade in a few days than invest in a
fund that will take seven years,” he says.
Such perceptions seem to have affected how the
unit trust fund market has been structured. Apparently, many people who
would otherwise invest believe that only the rich should consider mutual
funds or unit trust schemes — also known as Collective Investment
Vehicles.
“It all boils down to scarcity of choice,” says Mr
Sylvester Omondi, a high school teacher in Nakuru. “The low and middle
income earners are effectively locked out of the mutual fund system.
They don’t have much choice between investing in unit trusts and
catering for their immediate needs. In fact, only a handful of Kenyans
know what unit trusts are.”
Also, certain aspects of unit trusts have been
more predominant in Kenya than others. According to a study conducted by
the University of Nairobi between January 2008 and December 2011, money
markets, equity, and balanced funds were categorised as the major
groups that represented the extreme end of the investment spectrum. The
study established that growth of the fund was the key determinant in the
performance of unit trusts.
“As funds grow larger, they tend to become less
efficient in their operations. Similarly, expense ratio, age of fund,
fund size, and initial investment amount do not have a key influence on
performance,” notes the study.
However, with a growing economy and availability
of information on the investment options available both locally and
internationally, this market seems to have risen from the woodwork, if
the current growth statistics are anything to go by.
Most licensed mutual fund traders have also
embraced the use of technology, making it easier for existing and
potential investors to join, switch between funds, redeem units, and
update their information via mobile handsets.
The immediate benefit for investors using their
mobile phones for such deals is the reduction in the amount they can
invest. At Zimele Asset Management company, for instance, the amount has
been reduced to Sh250 and Sh500 for the pension plan and the Zimele
unit trust respectively.
Currently, Kenya has 17 licensed fund managers
offering various products. “Locally licensed mutual fund companies offer
the option to invest in several types of mutual funds which vary
according to the type of financial investment that is made,” says Mr
Bryan Wesonga, the communications director at Old Mutual investment
company.
In Kenya, mutual funds fall into six main
categories — money market fund, fixed income fund, balanced fund, equity
fund, bond fund, and managed fund. The equity and balanced funds are
the most popular, investing in company shares, bonds, and money markets.
“Mutual funds offer each contributor a specific
rate of return in percentage form that is usually variable,” says Mr
Wesonga. The returns are periodically distributed. According to Mr
Wesonga, some funds will allow the investor to redeem their funds at any
time. “This should be following a few days’ notice,” he adds.
In May 2011, Old Mutual cut its lump sum or single
purchase order investment minimums. In that review, the minimum
investment amount for equity, balance, bond, and East Africa funds came
down to Sh50,000 from Sh200,000. Similarly, the minimum top-up amount
decreased to Sh5,000 from Sh20,000. “This move has enabled us to attract
more investors who previously thought the unit trust fund was an
investment reserve for the moneyed,” he says.
Since December last year, Old Mutual has further
reduced its minimum initial investment amount to Sh480 from Sh1,000.
This change has also been effective on the minimum top-up amount,
minimum withdrawal amount, and minimum switch amount.
Zimele is currently administering and managing
funds in excess of Sh0.6 billion under its unit trust, guaranteed
personal pension, and Zimele personal pension plans.
Suntra Investment Bank has generated two
investment products — comingled managed funds and segregated managed
funds. The comingled fund includes money, balance, and equity funds
while the segregated fund is designed for potential investors without
the expertise to run their portfolios.
Mr Wesonga notes that dissemination of information
on the risk factors involved in the numerous products on offer to
investors has boosted confidence.
According to Old Mutual, the money market fund has
the lowest risk rate compared to the other funds while the equity fund
has the highest risk. The minimum investment amount in the equity fund
attracts the highest initial fee of 5.75 per cent compared to the bond
fund that has an initial fee of 2 per cent.
At CIC Asset Management Company, the equity fund
has the highest initial charge at 5 per cent per annum while the money
market fee stands at 1.5 per cent.
“The money market fund is a short-term loan market
where the mutual fund in is this case the lender and gets returns
through interest levied on loans to institutions such as banks and the
government,” says Mr Wesonga.
Some funds may be partially or fully exposed to
off shore markets. For instance, the British-American balance fund may
have a maximum of 10 per cent direct and/or indirect exposure offshore
as a hedge against inflation. The balance fund is usually suitable for
investors seeking to have a balanced portfolio that comes with exposure
to all sectors of the market.
Unit trust funds are statutorily entrusted to the
Capital Markets Authority and controlled by the Collective Investment
Schemes Regulations Act, which aims to protect the investor.
An investor can change the asset allocation
depending on circumstances. One can change from equity-based investments
(shares) to fixed income securities (Treasury bills and bonds) or a
blend of both.
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