What are mutual funds in Kenya? | A beginner's guide

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If you are just getting into investing, the sheer number of investment options available can be a headache. However, even without prior investing knowledge, there are simple ways for you to get started.

Mutual funds provide a reliable route for both complete beginners and busy investors.

What is a mutual fund?

A mutual fund is a type of investment where different investors, with the same financial goals, pool their money together and have a team of investment professionals invest it on their behalf.

By coming together in this way, investors get to access two crucial benefits:

  • They can afford a team of investment professionals who will buy and manage investment assets on their behalf
  • They can afford a wide range of investments that would ordinarily not be available to them individually

In this way, mutual funds are a good avenue for beginning investors as a gateway into the investing world.

How do mutual funds in Kenya work?

Mutual funds in Kenya are regulated by the Capital Markets Authority (CMA).

The investment professionals who run them are tasked with investing in specific assets that align with the fund’s goals.

These assets can range from stocks to bonds to money markets. And the profits earned are distributed into each investor’s account.

All investors of the fund own shares (or units) that are proportional to the amount of money they invest. And it is this amount of shares that determines their piece of the profits that the fund makes.

The 4 types of mutual funds in Kenya

There are 4 types of mutual funds in Kenya: equity funds, bond funds, money market funds, and the balanced fund.

  1. Stock funds (or Equity Funds) — these invest exclusively in company stocks. The aim here is to realize medium- to long-term capital gains for investors by investing in companies listed on the Nairobi Securities Exchange (NSE). Investors with a high-risk appetite and a long time horizon are well suited for this.
  2. Bond funds — invest exclusively in public and corporate bonds. This type of fund invests mostly in long-term and short-term government and corporate bonds. It is well suited for the investor with a low-risk appetite and a medium to short time horizon.
  3. Money-market funds these invest in quality short-term securities that typically mature in 12 months or less. These may include bank deposits and other short-term money market instruments like 90-day treasury bills. Money market funds are well suited for investors with a low-risk appetite and who might want to access their capital on short notice (i.e. high liquidity).
  4. Balanced fund — this type invests in a mix of traded stocks and government bonds.

Further Reading:

How do mutual funds pay you?

All profits are distributed to all investors of the fund and it’s usually in the form of interest payment.

Some funds distribute their profits daily, some weekly, and others quarterly. This varies from one fund to another, but it’s always communicated, so you should find out before investing in any fund.

It’s deposited into your fund account and you can withdraw it whenever you wish, subject to the conditions of the mutual fund.


If the fund makes a 10% profit on its investment, every investor in the fund makes 10% on what they invested at the beginning. So if you invested 10,000/=, your part of the profits would be 10%x10,000.

Why invest in a mutual fund?

  • You will get instant diversification— this is the biggest benefit of investing in mutual funds. By investing in a single fund, you gain ownership of all the investments the fund owns. A solo investor has to buy individual assets, one by one, to diversify. This takes a lot of time, effort, and money to achieve.
  • You will get access to professional expertise— the fund is steered by professional managers and analysts. Selecting the best stocks or bonds takes a lot of time and resources. With mutual funds, however, investors relay that work to professionals, who possess the training and experience to do it expertly.
  • They are affordable— For as little as 500/=, you can get access to a wide range of mutual funds in Kenya. What’s more, most of these funds have online portals, where you can register and have your money invested in less than 5 minutes.
  • They are safe— all mutual funds in Kenya are regulated by the Capital Markets Authority (CMA). It requires all mutual funds to be overseen by 3 independent parties: a fund manager, a custodian, and trustees. Each of these parties must be approved by the CMA.
  • You’ll have easy and fast access to your investmentyou can withdraw your funds whenever you want. Just get in touch with the fund and initiate the withdrawal. Most funds process payments instantly, though some have a 1- or 2-day waiting period.

What are the downsides of investing in mutual funds?

  • Fees eat into your profits — the team of professionals who run the fund gets a percentage of the profits in the form of fees. This will eat into your returns because part of what’s generated goes to paying the manager, instead of reinvesting. Meaning that over time, you won’t realize the full potential of your investments.
  • Risk of mismanagement — even with safeguards such as oversight and regulation from the CMA, funds are still prone to mismanagement. So before you commit your money to any mutual fund, look into its track record. That way, you’ll invest in a credible fund and reduce the chances of a loss.
  • Market risks — as is the case with all investments, there are always risks involving the assets you buy. Therefore, there are periods when the fund’s performance might not be good, especially if the assets it owns don’t do well.

How does a mutual fund help beginners?

Consider an investor who wants to get into real estate but doesn’t have enough cash, experience, or expertise to start.

Through a fund, he’ll find other people who want to invest in real estate (same objective), then they’ll pool their funds together (so they can afford it), and then they’ll hire a professional manager (someone with experience and expertise) to invest it on their behalf.

The investors then sit back and collect the profits generated.