Money market funds are a type of investment that belong to the liquid assets category. This means they are an alternative to savings accounts, where you deposit your money and earn interest on it. Money markets offer a way to invest your surplus money in a secure way without incurring risk.
Money markets are funds which invest in fixed-rate instruments such as bonds or certificates of deposits issued by banks with a credit rating of A or above, or other similar financial institutions. These investments are called money market instruments because they tend to maintain their value and liquidity instead of declining as stocks and shares do. Investing in money market funds can be useful for those who have surplus cash at any point in time but don’t know what to do with it.
It also offers an opportunity for people who want to steadily grow their savings over time, while limiting the risk associated with doing so. However, investing in these funds isn’t as foolproof as it may sound at first glance. Let’s take a closer look at why that is and how you can get started if you decide to do so.
What are money market funds?
Money market funds are a type of investment that belong to the liquid assets category. This means they are an alternative to savings accounts, where you deposit your money and earn interest on it. Money markets offer a way to invest your surplus money in a secure way without incurring risk.
Money markets are funds which invest in fixed-rate instruments such as bonds or certificates of deposits issued by banks with a credit rating of A or above, or other similar financial institutions. These investments are called money market instruments because they tend to maintain their value and liquidity instead of declining as stocks and shares do.
Investing in money market funds can be useful for those who have surplus cash at any point in time but don’t know what to do with it. It also offers an opportunity for people who want to steadily grow their savings over time, while limiting the risk associated with doing so. However, investing in these funds isn’t as foolproof as it may sound at first glance. Let’s take a closer look at why that is and how you can get started if you decide to do so.
Which money market funds are best in Kenya?
There are many different types of money market funds available, but the first question you should ask yourself is: Which one best suits my financial needs? There’s no one-size-fits-all answer to this question.
For example, if you want a fully tax-efficient solution, then a money market fund with tax-advantaged status would be a good choice for you. On the other hand, if you want to try your luck and bet on a fund with higher returns but greater risk, then that’s also an option for you. Once you know what your financial goals are and what type of money market fund will suit your needs best, it’s time to start investigating the various options available in Kenya.
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How does a money market fund work in Kenya?
A money market fund is not a bank, but it is an investment vehicle that looks like one. It’s a fund that pools funds from a variety of accredited investors and provides them with the opportunity to invest in certain fixed-rate instruments and earn interest on them. You can think of money market funds as safe deposit boxes for your cash. You put your money into the fund and let it grow while you sleep, and then get back your invested capital at the end of the month or year. Money market funds are convenient because they are less risky than buying individual securities. They offer stability in investments, which makes them ideal for short-term goals such as saving up for college tuition or retirement, or long-term goals such as purchasing a house or car. Some other advantages of investing in these funds include a higher yield on investments than you would find with bank deposits or savings accounts, convenience, stability, and tax benefits.
How is money market fund interest calculated?
Money market funds are designed to offer low-risk, steady and predictable returns which can be considered as a reliable alternative to savings accounts. They provide investors with a fixed rate of return in the form of an interest payment which is variable and paid at regular intervals. The calculation of an individual fund’s interest payment varies depending on the type of instrument they invest in. Interest payments are calculated by taking the difference between the yield and the interest rate that an investor pays on his or her investment. For example, if you have invested in a bond which has a 3% annual interest rate, then your money will accumulate 3%, which means you will earn 1% per annum as your interest payment.
Money market fund interest rates in Kenya
Firstly, you will have to decide which money market fund you want to invest in. These funds are usually divided into two categories – those that invest in government securities, and those that invest in corporate securities.
A major factor to consider when choosing a fund is the interest rate range it offers. There are many funds that have consistently given interest rates of 10 per cent or more.
If you consider the risk of investing in this type of fund, one thing to keep in mind is that there is always a slight chance that the value of your investment could decrease in case things don’t continue as planned for the company issuing bonds or stocks within the given time frame.
Keep one thing in mind, More Risk can lead to more earnings but it’s not guaranteed. So, look for the funds not with the highest interest rates but the ones with consistent average interest rates.
How safe are money market funds
? The most important consideration to make before investing in these funds is their safety. Their aim is to keep your money safe by investing it in fixed-rate instruments, instead of volatile ones. However, the risk can always be there with the funds themselves. If you’re considering a money market fund, do your best to research on how they were ranked and rated, taking into account factors such as liquidity, profits and losses, stability and sustainability. A good money market fund should also offer a range of investment choices as well as an attractive interest rate. The last thing you want is for your money not to be earned anything because of low-interest rates or other conditions that can affect your investments negatively.
FAQs
Who is eligible to invest in Money market funds in Kenya?
A person can invest in a Money Market Fund if they: a) are above the age of 18 years; b) have a valid Tax number; c) have an account with a local bank that is eligible to maintain investment.
How to determine a good money market fund?
A good money market fund (MMF) is a good way to save money and have access to a steady income. The funds, which these days are also called money markets, are popular for a number of reasons:
1. They are designed for short-term fixed returns.
2. The interest rate is usually more stable than what you can get from a savings account.
3. You can often withdraw your money at any time, without incurring fees.
They are liquid funds so you can invest or withdraw without needing to transfer the money somewhere else.
Is the investment in money market funds risky?
Since money market funds are liquid funds, their investment performance is easily tracked. The investment yields of these securities are fixed and known in advance, so they can be easily compared to each other. This makes it easier to understand how much your money is earning by holding the fund instead of just sitting in a savings account.
Investing in money market funds has some disadvantages too, though. One is that the actual securities may fluctuate in value over time and their value may change unexpectedly as well due to market conditions or unforeseen events such as geopolitical tensions or financial crises in other countries (that could impact the value of U.S. assets). So there is a potential risk that your investment may actually lose value over time even if the rate on your investment stays the same..
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