EMBRACING MONEY MARKET FUNDS AMIDST MACRO-ECONOMIC UNCERTAINTIES

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By Muthoni Muuo

Kenya, like many emerging economies, has had a fair share of economic ups and downs. Inflation rates have soared, the cost of living has escalated, and the Kenyan shilling is experiencing bouts of depreciation. So where are Kenyan investors putting their hard-earned money?

This reality is best exemplified by the latest data from the Capital Markets Authority (CMA) that revealed that Kenyans placed  Kshs. 131.5 billion  (or 74.7 percent)  of their funds in money market funds (MMF) ahead of others like equity funds. Among the myriad investment vehicles available, money market funds stand out as a stable and straightforward choice for investors looking to strike a balance between risk and return.

Money market funds, often referred to as “cash equivalents,” have long been a trusted staple in the world of asset management. These funds are a compelling choice due to their safety, liquidity, and simplicity.

Kenyans have traditionally relied on fixed deposits and savings accounts, saccos and chamas ( investment groups)  as our go-to savings vehicles. While these options offer security and are relatively hassle-free, the returns are often affected by the rising cost of living and currency depreciation, effectively eroding the real value of savings.

Benefits

Alternatively, money market funds present a compelling alternative for savvy Kenyan investors seeking to preserve and potentially grow their wealth despite economic headwinds.

The Kenyan shilling’s depreciation is another concern for anyone seeking to save or invest. It is eroding the purchasing power of citizens, making it challenging to maintain their standard of living.

Money market funds provide an avenue to invest for the short-term or long-term as they are low-risk securities that can help mitigate the impact of currency depreciation. Unlike traditional savings accounts, money market funds have the flexibility to invest in instruments denominated in foreign currencies, which can act as a hedge against shilling depreciation.

Inflation, another persistent economic issue, has been on the rise in Kenya. This erodes the value of money stored in traditional savings accounts, which often yield nominal returns below the inflation rate. Money market funds are invested in government and corporate debt securities that tend to outpace inflation, offering a better chance of preserving the real value of investments compared to the conventional savings options.

Additionally, money market funds in Kenya are known for their transparency and regulatory oversight. Asset management companies such as CIC Asset Management are regulated by CMA which ensures that all funds raised from investors are not exposed to undue risks, providing peace of mind amidst economic uncertainty.

Lastly, money market funds offer liquidity and accessibility allowing investors to withdraw their funds on short notice, which makes them suitable for both short-term and long-term financial goals.

For instance, CIC Asset Management’s money market fund product starts from as low as Kshs. 5,000 while giving Kenyans the flexibility to access their money at any time. This liquidity feature can be invaluable when unexpected expenses arise or when opportunities for investment or spending present themselves.

It is essential to acknowledge that money market funds may not offer the same potential for high returns as riskier investments like stocks or real estate. However, they are designed to provide stability, liquidity, and a reasonable return on investment over time. They can serve as a robust tool for Kenyans to preserve their capital and potentially outpace inflation, all while keeping their money readily accessible.

In conclusion, as Kenyans grapple with economic challenges, money market funds offer a pragmatic way to safeguard one’s financial future in uncertain times.

By diversifying their savings and investment strategies with money market funds, Kenyans can take a proactive step toward financial resilience and stability in an ever-changing economic landscape.

 The writer is the Portfolio Manager at CIC Asset Management

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