Returns from the popular money market funds (MMFs) have softened as interest rates eased off from record highs, signalling lower returns from the asset class sought after mostly by retail or individual investors.
An MMF is a type of mutual fund that invests in high-quality, short-term debt instruments, cash, and cash equivalents. Though not exactly as safe as cash, money market funds are considered extremely low risk on the investment spectrum and thus carry close to the risk-free rate of return.Â
MMFs are mainly invested in government and corporate debt securities that tend to outpace inflation, offering investors a better chance to preserve the real value of investments compared to conventional savings options.
An analysis by the Business Daily of seven select MMFs showed that the returns have softened by between 0.1 and 0.71 percentage points in the past month.
Daily and annual yields from the African Alliance Kenya MMF have, for instance, fell by 0.62 and 0.71 percent respectively since September 24, easing to 13.33 percent and 14.17 percent from 13.95 percent and 14.88 percent.
Yields offered by most fund managers including Etica, Mayfair, Kuza, and Lofty-Corban have followed a similar trajectory as the return from underlying investments- bank fixed deposit accounts and Treasury bills drops.
Interest rates on commercial bank fixed deposit accounts and Treasury bills have begun unwinding from multi-year highs on reduced risk perceptions, which have been flanked by recent cuts to the benchmark lending rate by the Central Bank of Kenya (CBK).
Yields from the 91-, 182-, and 364-day Treasury bills have, for instance, fallen for 13 straight weeks since the beginning of August with the return on the shortest-dated paper dropping below 15 percent from a high of 16 percent at the end of July.
The annual rate of return from money market funds represents earnings by investors after the netting of fund management fees and withholding taxes.
The MMF has been the most popular class of collective investments, accounting for 67.4 percent of the 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 which buy stocks in listed firms at the Nairobi Securities Exchange (NSE), balanced funds, special funds, and other funds such as dollar funds.
Some MMFs have, however, shown resilience in the face of falling interest rates to hold yields steady.
The Britam Money Market Fund's daily and annualised rate of return has, for instance, improved marginally by 0.03 and 0.04 percent to reach 12.45 percent and 13.25 percent respectively.
Yields on the CIC Money Market Fund have also remained unmoved in the past month at a daily and annual rate of 12.91 and 13.7 percent each.
The yield for money market funds is usually calculated daily and credited to each investor’s account.
The popularity of MMFs continues to attract more players and products. Only this month, MWealth-tech startup and fund manager Waanzilishi Capital Kenya Limited, which trades as Ndovu, launched an MMF following regulatory approval to set up the entity earlier in March.
In August, Jubilee Asset Management, a subsidiary of Jubilee Holdings, launched a dollar-denominated MMF that requires an initial minimum investment of $1,000 (Sh128,980).
The fund, dubbed Jubilee Money Market Fund (USD), will require a minimum top-up of $500 (Sh64,492.81) and marks a diversification from a shilling-denominated fund that requires an initial minimum investment of Sh5,000 and top-ups of at least Sh1,000.
