A good bet for your ‘chama’ to pump its savings is unit trusts

A smiling woman counting coins.  Photo/FILE

In Summary

• Unit trust are investment instruments based on the concept of pooling funds.
• Unit trusts are regulated by the Capital Markets Authority, and also have trustees to safeguard the interests of members.
• As far as unit trusts are concerned, your chama should decide what proportions to invest in based on your goals.

By NATION REPORTER
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Thank you, Zimele team, for your informative answers on personal finance.

Kindly refresh my memory: What are unit trusts?

Having said that, I belong to an investment group which saves up to Sh500,000 a year.

How best can we invest this money for good returns in both and long- and short-term investment products?

— Daniel

Unit trust are investment instruments based on the concept of pooling funds.

This is where money from a number of investors is put together and invested collectively.

Unit trusts are regulated by the Capital Markets Authority, and also have trustees to safeguard the interests of members.

Other service providers include a custodian who ensures safe keeping of the money and investments, and a fund manager whose role is to ensure the funds are invested appropriately.

Unit trusts that cater for short-term objectives are called money market funds or income funds and they are invested in interest-bearing securities such as treasury bills, treasury bonds, fixed deposits, among others.

Returns are in the form of interest income, and they carry low risk.

On the other hand, unit trusts that cater for long-term objectives are called balanced funds and equity funds.

They are invested in interest-earning securities as well as shares of companies listed at the Nairobi Securities Exchange.

Their returns are usually in the form of appreciation in the value of the amount invested over a period of time.

AND THE ANSWER IS...

Back to your question on where to invest your Sh500,000 savings a year.

The decision on where to pump the money depends on one’s preference and objectives.

Your chama should come up with an investment policy statement.

This outlines which investments the group will be undertaking over a certain period of time.

As far as unit trusts are concerned, your chama should decide what proportions to invest in based on your goals.

The benefit of investing in unit trusts is that the funds are managed on your behalf so if all of you are occupied on a full-time basis in various undertakings, this could be an ideal investment.

You can get the listings of the unit trusts available from the financial pages of your favourite daily newspaper from Tuesday to Saturday, which will enable you to choose and compare on the ones that match your needs and fit into your resources.

Investing is also a function of the risk your chama is willing to take