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Mutual funds pool money from many investors to invest in shares, bonds, and money market instruments. They are professionally managed, make investing easier and reduce risk for beginners.
Choose funds that suit your goals and how much risk you can take. Check the fund’s past performance and the credibility of the managers to make sure it fits your plans.
Always look at costs, rules, and access to your money. Fees, exit charges, minimum investments, and withdrawal limits can affect your returns and when you can get your money.
Spread your money across different fund types; money market, shares, bonds, and mixed funds. This lowers risk, balances market ups and downs, and helps grow your money steadily over time.
Mutual Fund Overview
A mutual fund is a collective investment scheme that gathers money from many investors and invests it in a mix of assets, such as stocks, bonds and money market instruments.
Mutual funds have become popular in Kenya for a simple reason: they simplify investing. They provide a relatively low-risk way to build wealth and offer instant diversification by spreading your money across different assets.
You can read the beginners guide to mutual funds which can help you make informed decisions to help grow your money steadily and consistently.
Because mutual funds can shield you from market volatility. This makes them a great entry point into the capital markets for beginners and experienced investors alike.
But here’s the real challenge: it’s not just about investing in mutual funds; it’s about choosing the right one.
This guide will walk you through the main types of mutual funds, what to look for when selecting them, and how to invest wisely to effectively grow your wealth.
How to Choose the Right Mutual Funds:
While it’s common to seek mutual funds with the highest returns, there are other factors to consider before picking the fund that’s right for you.
Here’s a checklist of factors to keep in mind when choosing mutual funds to help you make informed decisions.
Define your financial goals
Determine your investment objectives, such as saving for retirement, education, or buying property like a house or car. Your goals dictate the right funds for you and your investment timeline, both of which are key to your portfolio.
Assessing your risk tolerance
Every investor approaches risk differently. Your risk tolerance is how much potential loss you are willing to accept when markets fluctuate. These fluctuations can be driven by many factors, like changes in global currencies, such as the depreciation of the Kenyan Shilling against the US dollar. Understanding your position on the risk spectrum is crucial, as it guides the types of investments that suit you best.
Key investor risk profiles in Kenya
In Kenya, investors typically fall into five broad risk profiles, and knowing yours can guide smart investment choices.
Risk-averse investors prioritize safety above all else, often choosing deposits or low-risk options even if returns barely keep up with inflation.
Conservative investors seek slightly higher returns, willing to take small, controlled risks to modestly grow their money.
Moderate investors strike a balance between growth and income, diversifying their investments to achieve both potential returns and some security.
Moderately aggressive investors focus on long-term growth and are comfortable with noticeable value swings, accepting some losses for higher gains.
Aggressive investors fully embrace risk, tolerating volatility and short-term setbacks for the chance of strong long-term returns.
Review fund performance
Before investing, check how a fund has performed. Compare its returns with its benchmark and similar funds to see if it adds real value.
Past performance doesn’t guarantee future results, but it shows the fund’s consistency and how the manager reacts to both favorable and tough markets. Also, look at the fund’s objective, strategy, limits, and current portfolio. In the end, compare funds based on their goals, track record, fees, and the strength of their management team. Tools like Standard Chartered’s SC Mobile App make this easier.
Fund manager details
When you invest in a mutual fund, your money is managed by the fund managers. Be sure to check their credibility by reviewing the performance of other funds they have managed in the past.
Fund policy constraints: Ensure the fund fits your needs
Watch for any features or restrictions that may not suit you. For example, the fund might not pay dividends, the minimum investment could be too high, or buying and selling shares might be complicated.
Factor in the costs: Expense ratios and Exit loads
Investing in mutual funds isn’t free; even small costs can reduce your long-term returns. Two key costs to monitor are expense ratios and exit loads.
Expense Ratios are the annual fees that fund managers charge for managing your investment. They cover management, administration, and marketing, which reduce your net returns. Passive funds usually have lower fees, while active funds may justify higher costs if they deliver better performance.
Exit Loads are fees charged if you sell too soon. These discourage short-term trading and help keep the fund stable. For instance, some Kenyan funds charge 1% if you sell within 12 months, with no fee afterward.
Always consider these costs. Over time, they can significantly affect your investment, especially if it’s substantial.
Consider your liquidity needs
Liquidity is how easily you can access the money invested in your mutual funds at any time. Several factors affect liquidity, including lock-in periods, fund size, and redemption limits. This is another important consideration when choosing mutual funds, especially if you face unexpected expenses like accidents, illnesses, or home repairs.
Types of mutual funds in Kenya
Kenya’s mutual fund market offers a broad selection of professionally managed investment funds designed to match different financial goals, risk profiles, and investment horizons. Overall, these collective investment schemes fall into four main categories:
1. Money Market Funds
Money market funds such as the SC Shilingi Funds, which invest in low-risk, short-term instruments like Treasury bills, commercial papers, and fixed deposits. They aim to maintain a stable value while providing high liquidity, making them ideal for conservative investors.
2. Equity (Stock) Funds
Equity funds primarily invest in shares listed on the Nairobi Securities Exchange (NSE) or globally. They focus on long-term capital growth and can follow strategies like Growth, Value, Large Cap, or Small Cap investing, or target specific sectors like Property, Energy, or Healthcare. Equity funds are suitable for investors with a higher risk appetite seeking potentially higher returns over the medium to long term.
3. Bond (Fixed Income) Funds
These funds invest in government and corporate bonds, offering steady income through interest payments. Short-term bonds tend to be less volatile, while corporate bonds may offer higher yields but come with increased risk. Bond funds are ideal for investors seeking lower to moderate risk with a medium-term investment horizon.
4. Balanced (Hybrid or Multi-Asset) Funds
Balanced funds combine stocks, bonds, and sometimes money market instruments. The proportion of each asset may change over time or stay fixed, depending on the fund’s strategy. They provide a mix of growth and income, making them suitable for investors looking for moderate risk and diversified exposure.
Why diversifying across multiple mutual funds matters
Spreading your investment across different mutual funds is a smart approach in Kenya. It’s like not putting all your eggs in one basket; if one sector declines, others could help maintain your portfolio’s stability. By investing in a variety of funds, you gain exposure to different industries, assets, and even global markets, giving your investments more opportunities to grow. Each fund is managed by professional teams, so you’re benefitting from the expertise of several groups making informed decisions on your behalf. Diversification is not only safer but also a way to maximize your investment growth potential. If you’re looking for a way to do this, Standard Chartered’s ‘Mutual Funds could be the solution.
Speak to your relationship managers or contact us if you’re looking to invest wisely to effectively grow your wealth.
Frequently Asked Questions
1. How do I start investing in mutual funds through Standard Chartered Bank?
To start investing with Standard Chartered Bank, first, you need a savings account with us. Once that’s done, you can open an investment account.
2. How do I open an investment account with Standard Chartered Bank?
To open an investment account, log in to SC Internet Banking. Follow the on-screen instructions to set up your investment profile. After that, you will see options to invest in mutual funds that match your risk profile.
3. Do I need to pay any charges or fees for investing in mutual funds through Standard Chartered Bank?
No fees are charged for mutual fund investments through Standard Chartered Bank. However, keep in mind that expense ratios and exit loads for the mutual funds charged by the AMCs will apply.
