Difficult to buy shares? Try unit trusts

Personal finance

Difficult to buy shares? Try unit trusts


Kenyans are increasingly turning to fund managers to invest for them, taking the hassle out of picking a stock, opening a CDS account, finding a brokerage firm, picking stocks and knowing when to sell. while tracking their profits on mobile phone apps.

With many people using cell phones to invest as little as 1,000 shillings, a fund manager puts the pooled money into stocks, bonds and debt, and the investor watches as he earns interest and withdraws money. money in a few days. This is what is causing the unit trust to skyrocket. So what is a unit trust?

A mutual fund is a fund in which the contributions of investors are pooled to buy a portfolio of financial securities, such as stocks (stocks), bonds, cash, term deposits and it is managed by managers of professional funds.

On average, mutual funds in Kenya will charge you an annual management fee of between 2-2.5% plus an initial fee which varies by product.

Retail investments in mutual funds, which come mainly from small buyers or buyers without financial market expertise, increased from 55.7 billion shillings in March 2017 to 140.6 billion shillings in the first quarter of 2022, a jump of 152%, the last quarterly Capital Statistical Bulletin of the Autorité des marchés (CMA).

The increase in the number of people investing passively comes at a time when Kenya is witnessing a reduction in trading on the Nairobi Stock Exchange (NSE), with 97% of stock accounts being inactive over the past two years.

“We may think the market is down due to inactive accounts, but people are investing through unit trusts. We are currently reviewing the data to determine if the growth of collective investment schemes is driven by retail investors or perhaps even large accounts,” said Luke Ombara, Director of Policy and Strategy at CMA.

Where to start

There are approximately 20 active and regulated unit trust companies including CIC, Coop Trust, ICEA Lion, Britam, NCBA, Old Mutual, Stanlib, Madison, Dry Associates, Zimele, Amana, Equity, Gengis, Cytonn, Nabo, Apollo, African Alliance and Alpha Africa.

CIC Unit Trust Scheme has the highest assets of 56.92 billion shillings, which represents 40.46% of the entire sector, followed by NCBA Unit Trust Scheme which manages 19.76 billion shillings.

Unit trusts are easy to invest in with a very low entry bar of as little as 1,000 shillings, giving clueless retail equity investors a chance to put their money under the watchful eye of a manager. funds and an approved custodian and a trustee.

These mutual funds are also relatively safe as long as they diversify investment stocks, bonds or other types of approved assets, carry out regular audits and have a fund manager, custodian and a trustee approved by the regulatory body.

A fund manager can spread risk by investing in a diversified portfolio of securities, which is often difficult to achieve for an individual investor with limited funds.

The funds are also highly liquid, which means investors can withdraw their funds at short notice, often in just a few days.

Unit trusts have also become an effective tool in the fight against inflation which has the effect of eroding the value of cash holdings, especially when they do not earn lucrative interest.

Inflation is a big concern in a market like Kenya where the rate on savings bank accounts is 2.52% against an inflation rate of 7.9%. Unit trusts offer returns of between 4.8% for Amana Capital and 10.5% offered by Cytonn Investments.

Cytonn operates a regulated unitary trust fund with 725.7 million shillings which is separate from its troubled unlicensed funds, Cytonn High Yield Solutions (CHYS) and Cytonn Project Notes (CPN) holding 13.5 billion shillings in real estate investments.

“The continued growth of the unit trust in Kenya is a testament to increased investor awareness of the ease of entry and withdrawal of funds by investors as well as the allure of generating returns on savings competitive enough to combat inflationary erosion,” Wycliffe Shamia said. in the quarterly statistical bulletin.

Unit trusts have exploded as a passive investment option, particularly due to the growth of mobile money which has allowed the retail investor to put funds in and withdraw immediately via M-Pesa.

Digitization has also seen the Unitary Trust roll out a user-friendly mobile app that helps consumers choose available products, make investments, track returns and make withdrawals faster.

This has seen many partnerships including Nabo Capital, a subsidiary of Centum Investment teamed up with Moneto Ventures to launch a fund that takes as little as Sh5, Britam teamed up with Fintech start-up Koa while Standard Chartered , Sanlam Investments East Africa and global digital wealth technology provider Bambu to lead digital money market fund, SC Shilingi Fund

Safaricom is also targeting this retail wealth management product with CEO Peter Ndegwa saying they have received regulatory approvals and should expect an official launch soon.

Safaricom is expected to partner with a fund manager already approved by the CMA, who will also approve the new product.

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