Returns on popular money market funds (MMFs) fell as interest rates retreated from record levels, indicating lower returns from an asset class often sought by retail or individual investors.
MMF is a type of mutual fund that invests in high-quality, short-term debt instruments, cash and cash equivalents. Although they are not quite as safe as cash, money market funds are considered very low risk on the investment scale and therefore have a close to risk-free rate of return.
MMFs invest mainly in government and corporate debt securities that tend to outpace inflation, providing investors with a better opportunity to preserve the real value of investments than traditional savings options.
analysis before Daily chores Seven selected MMFs showed that returns fell by between 0.1 and 0.71 percentage points last month.
For example, daily and annual returns from Africa Alliance Kenya (MMF) have decreased by 0.62 and 0.71 percent respectively since September 24, falling to 13.33 percent and 14.17 percent from 13.95 percent and 14.88 percent.
Returns provided by most fund managers including Etica, Mayfair, Kuza and Lofty-Corban followed a similar path with lower returns from underlying investments – bank fixed deposit accounts and treasury bills.
Interest rates on commercial banks’ fixed deposit accounts and treasury bills have begun to decline from multi-year highs due to lower risk perceptions, which have been accompanied by recent cuts in the benchmark lending rate by the Central Bank of Kenya.
For example, yields on 91-, 182- and 364-day Treasuries have fallen for 13 straight weeks since the beginning of August, with the yield on the shortest-dated notes falling below 15 percent from a high of 16 percent. End of July.
The annual rate of return from money market funds represents investors’ earnings after deducting fund management fees and withholding taxes.
MMF was the most popular category of collective investments, accounting for 67.4 per cent of Sh254 billion assets under management (AUM) in the first six months of the year, or Sh171.1 billion.
Other fund types include fixed income funds, which invest primarily in government securities, equity funds that buy shares in companies listed on the Nairobi Stock Exchange (NSE), balanced funds, private funds, and other funds such as dollar funds.
However, some multilateral funds have shown resilience in the face of lower interest rates to keep returns stable.
For example, the daily and annual rate of return of Pritam Money Market Fund improved marginally by 0.03 and 0.04 per cent to 12.45 per cent and 13.25 per cent, respectively.
CIC money market fund returns also remained unchanged last month at daily and annual rates of 12.91 and 13.7 percent each.
The return of money market funds is typically calculated daily and credited to each investor’s account.
The popularity of MMFs continues to attract more players and products. Just this month, MWealth-tech startup and fund manager Waanzilishi Capital Kenya Limited, trading as… Elephants released MMF After obtaining regulatory approval to establish the entity earlier in March.
In August, Jubilee Asset Management, a subsidiary of Jubilee Holdings, launched a dollar-denominated MMF that requires a minimum initial investment of $1,000 (Sh128,980).
The fund, called the Jubilee Money Market Fund (USD), will require a minimum of $500 (Sh64,492.81) and represents a variation of a shilling-denominated fund that requires a minimum initial investment of Sh5,000 and additional add-ons of at least Sh1,000.
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