How to invest in mutual funds in Kenya

Mutual funds are one of the most popular forms of investment options for Kenyans because of their ease of use and variety.

New investors may find it difficult to browse the thousands of mutual funds on the market. To know how to invest in mutual funds in Kenya, one must first know the different types of funds in Kenya.

What are the different types of mutual funds in Kenya?

In general, there are four main types of mutual funds: those that invest in stocks (equity funds), in bonds (bond funds), in short-term debt securities (money market funds), or in stocks and bonds (mixed or hybrid funds).

All mutual funds are designed to spread risk while seeking higher returns in the market. Some types of funds carry greater risk than others, but also greater potential returns. Here’s a closer look at the most common types of mutual funds in Kenya.

Equity funds in Kenya

Equity funds buy shares in a number of publicly traded companies. Most mutual funds on the market are some type of stock mutual fund. Equity mutual funds have higher growth potential but higher potential value volatility. Financial planners recommend that the younger you are, the more stock mutual funds you should add to your portfolio, since you’ll have more time to weather the inevitable ups and downs in market value.

Industry or sector funds in Kenya

These mutual funds focus on a specific sector, such as technology, oil and gas, aviation, or healthcare. For example, investors who want to participate in the earnings of companies like Safaricom and Airtel could invest in a technology fund. Holding funds in different sectors can help diversify the portfolio so that when one sector suffers (like the 2000 dot-com bubble burst), those losses can be offset by gains in other sectors.

Growth and value funds in Kenya

The investment style of the fund is another distinguishing feature of mutual funds. Growth funds, as the name suggests, look for stocks that fund managers believe will outperform. Value funds look for companies whose shares are (you guessed it) undervalued by the market.

International, global and emerging market funds for Kenyans

Geographical location can also determine how mutual funds are constructed. International funds invest in companies that do business outside of the country, while global funds invest in companies that do business in both the country and abroad. Emerging market funds target countries with small but growing markets.

Pension funds in Kenya

Bond funds are the most common type of fixed income mutual fund, where (as the name suggests) investors are paid a fixed amount on their initial investment. Bond funds are the second most popular type of mutual fund on the market.

Instead of buying stocks, bond funds invest in government and corporate bonds. Bond funds are considered safer than stocks and have less growth potential than stock funds.

Just as advisors say stock funds favor young people, investors approaching retirement should have more bond funds in their portfolios to protect their savings and earn more interest than if they put that money in a bank account.

Money market funds

Money market mutual funds are fixed income mutual funds that invest in high-quality, short-term government, bank or corporate debt securities. Assets held by these funds include Treasury bonds, certificates of deposit, and commercial paper. They are considered one of the safest investments.

Balanced funds

Also known as asset allocation funds, these investments are a combination of stock and bond funds with a fixed ratio of investments, e.g. B. 60% stocks and 40% bonds. The most popular variety of these funds are target-date funds, which automatically switch the ratio of investments from stocks to fixed income securities as retirement approaches.

Here is how you can invest in mutual funds in Kenya

How do you invest in mutual funds? To invest in mutual funds, you first have to:

  • Look for institutions that have mutual funds.
  • What type of mutual fund does this institution offer? Is it a money market fund, a dividend fund or a balanced fund?
  • Register to start investing in the mutual funds.