What are unit trust funds?

Unit Trust Funds (UTFs) also known as mutual funds are investment vehicles that combine funds from diverse investors and are overseen by professional fund managers. These managers allocate the pooled funds into a range of securities, such as stocks, bonds, money market instruments, or other authorized securities, aligning with the fund’s objectives.

Earnings for the pooled money in the Unit Trust Investment come in the form of dividends, interest income, and/or capital gains, contingent on the asset class in which the funds are invested. Investors in a unit trust fund typically receive units, representing a share of the underlying portfolio of securities, in return for their invested amounts.

The operation of Unit Trust Funds in Kenya is governed by the Capital Markets Authority (CMA) and is subject to regulation in accordance with the Capital Markets Collective Investments Schemes Regulations, 2001.

Types of Unit trust funds to invest in

  1. Money Market Funds (MMF) – the funds are focused on short-term debt instruments, including bank deposits, short-dated treasury bills, and commercial papers. These funds are characterized by relatively low risk, high liquidity, and are particularly well-suited for risk-averse investors seeking stability and high-interest returns in their portfolios.
  2. Equity Funds (EF) – are investment funds that acquire ownership stakes in businesses, often in the form of publicly traded stocks. These funds primarily invest in equities, aiming to provide superior returns through capital appreciation or dividend payments over the medium to longer term. Equity Funds are best suited for investors with a high-risk appetite, given their characteristic high volatility.
  3. Fixed Income Funds – specialize in short-term debt securities, striving to deliver a reasonable level of interest return and capital growth. These funds typically invest in instruments such as treasury bills, treasury bonds, and corporate bonds. Fixed Income Funds are considered relatively low risk and are ideal for risk-averse investors seeking security and a steady income from their investments.
  4. Balanced Funds – are mutual funds that create a diversified portfolio by investing in both equities and fixed income securities. This diversification serves to hedge against risks, making these funds suitable for investors looking for a balanced portfolio with exposure to various market sectors.

Benefits of unit investment trust fund

  1. Enhanced portfolio diversification: Typically, a fund holds a multitude of financial securities, and diversification serves to mitigate risk.
  2. Daily liquidity: Investors holding units have the flexibility to buy and sell them daily.
  3. Professional management of investments: Portfolio managers are employed by unit trust funds to supervise and manage the fund’s investments.
  4. Increased accessibility: The opportunity to participate in investments that might otherwise be accessible only to larger investors. For instance, individual investors often face challenges when attempting to directly invest in foreign markets.
  5. Security in investment – Investors can be confident in the security of their funds, as each unit trust is required to have a trustee responsible for overseeing the fund’s overall operations. Despite risks in any investment, unit trusts benefit from robust regulation by the CMA, preventing fund managers from engaging in certain risky practices.
  6. Attractive returns – Unit trusts present attractive returns when compared to traditional investment products or bank deposits. Over time, they have consistently demonstrated their ability to outperform inflation, providing investors with the potential for significant returns on their investments.

Unit trust funds offer diverse investment options catering to various risk profiles and financial goals. Whether one seeks stability and liquidity in Money Market Funds, potential high returns in Equity Funds, steady income in Fixed Income Funds, or a balanced approach in Balanced Funds, these investment vehicles provide flexibility and choice.

Contact us today to guide you through your journey in choosing and investing in the right unit trust fund that meets your financial objectives.