If you’re looking to grow your savings, diversify your portfolio, and access professional investment management without needing huge sums of money, unit trusts are an option worth considering. Here’s a comprehensive guide for Kenyan investors.
What Are Unit Trusts?
A unit trust fund pools money from many investors who share the same financial objective. Professional fund managers then invest the pooled money in a portfolio of securities such as:
- Stocks and equities
- Government and corporate bonds
- Money market instruments
In return, investors receive units, which represent their share of the fund. Returns are generated through capital growth (the value of the units rising) and/or dividends from income earned by the fund.
Unit trusts are typically open-ended, meaning investors can buy or sell units at the prevailing price, calculated daily based on the fund’s net asset value (NAV).
How Unit Trusts Work
- Buying Units: You purchase units through a licensed fund manager at the current selling price.
- Selling Units: You can redeem your units at the prevailing buying price. Prices fluctuate with the market, especially in equity-heavy funds.
- Income Generation: Returns come from capital growth or dividend income. Capital growth occurs if the value of the fund’s underlying portfolio rises. Dividends are paid out when the fund earns income.
Advantages of Investing in Unit Trusts
- Diversification: Spread your money across multiple investments to reduce risk.
- Liquidity: Easily sell your units compared to trading individual stocks.
- Professional Management: Experienced fund managers make investment decisions based on research.
- Access to More Assets: Some investments, like government and corporate bonds, may be inaccessible to individual investors.
What to Look For in a Unit Trust Fund
Before investing, review the following:
- Investment Objective & Strategy: Understand the fund’s goals, risk level, and asset allocation.
- Past Performance: Look for consistent long-term returns, but remember past performance doesn’t guarantee future results.
- Fees & Charges: Be aware of management fees, initial fees, and withdrawal penalties.
- Fund Manager Reputation: Evaluate the experience and track record of the fund manager and management team.
- Liquidity & Convenience: Check how easy it is to buy and sell units and whether the minimum investment suits your budget.
Investing Wisely
- Read the prospectus carefully to understand risks, fees, and rights as a unit holder.
- Deal only with CMA-licensed fund managers to ensure regulatory protection.
- Avoid high-pressure sales tactics; take your time to choose a fund that aligns with your goals and risk tolerance.
- Keep accurate records of your investments and check statements for accuracy.
- Be cautious of promises of guaranteed high returns.
Unit Trusts Operational in Kenya
Here’s a snapshot of some of the major unit trust schemes available in Kenya and their minimum investments:
| Fund Manager | Fund Types | Minimum Investment (KES) |
|---|---|---|
| African Alliance | Shilling Fund, Fixed Income, Managed Fund, Equity Fund | 100,000 |
| Old Mutual | Equity, Money Market, Balanced | 200,000 |
| British American | Money Market, Income, Balanced, Managed Retirement, Equity | 250,000 |
| Stanbic | Money Market, Flexible Income, Managed Prudential | 1,000,000 |
| NCBA | Money Market, Equity | 500,000 |
| Zimele | Balanced, Money Market | 5,000 |
| Suntra | Balanced, Money Market, Equity | 100,000 |
| ICEA | Money Market, Equity, Growth | 100,000 |
Other CMA-licensed funds include CFC Unit Trust, Dyer & Blair Unit Trust, and Standard Unit Trust.
Regulation and Investor Protection
- Only CMA-approved unit trusts can be sold to the public.
- Approved funds will clearly state their registration in the prospectus.
- While laws and guidelines exist to protect investors, it’s ultimately your responsibility to evaluate suitability, profitability, and risk.
Investing in unit trusts can be a powerful way to grow wealth, achieve financial goals, and access professional management, even with relatively small amounts of capital. Always make informed decisions based on your circumstances and financial objectives.
