Money Market Fund (MMF) is a financial instrument where managers take money from clients, invest it in bonds, bills, Real Estate etc and then give each client their interest.
Daily yield in money markets refers to the interest or return earned by an investor on a short-term investment for a single day while annual yield represents the annualized return on an investment in money market instruments.
According to the Capital Markets Collective Investment Schemes Regulations 2023, Section 102 (a) states that;
"Money Market Funds should invest only in interest-earning money market instruments which have a maximum weighted average tenor of eighteen months and includes credit rated or guaranteed commercial papers, government securities, call deposits, certificate of deposit including fixed deposits in commercial banks and deposit taking institutions and any other like instruments as specified by the Central Bank of Kenya from time to time"
As such, the definition of each asset class is as follows;
Demand deposits consist of deposits (in local and foreign currency) which are immediately convertible into cash and which are transferable by cheque, banker’s order, debit entry etc, without significant restriction or penalty.
Call deposits are deposits placed for a period of less than seven (7) days or those matured but not yet withdrawn or contract not yet renewed.
Commercial papers are short-term debt instruments issued by companies to raise funds for a time period.
Listed securities are short-term financial instruments that are publicly traded on a recognized stock exchange or other regulated market. These securities are characterized by their high liquidity and low risk, making them suitable for money market investments.
Securities Issued by the GoK are typically treasury bills & bonds whereby;
Treasury Bills: Short-term investment, with maturities of 91 days, 182 days and 364 days. (Minimum Ksh100K)
Treasury Bonds: Medium- to long-term investments, and their maturity can range from one year to 30 years. (Minimum Ksh50K)
Therefore, depending on a particular fund manager's investment strategy, each asset class is allocated a certain percentage whereby each individual asset allocation generates a weighted return.
Based on this mix of investments, the weighted gross return can be derived by summing up all the individual weighted returns and dividing by the number of asset classes invested in.
Numerical example
A particular money market fund 'X' invests in the below asset allocations each with their individual weighted returns.
Fixed Deposits: 56.73% ..............(19.62%)
Cash & Demand deposits: 23.45% .............(17.23%)
Listed securities: 0.38% ..............(16.09%)
Securities issued by GoK: 19.44% ............(21.15%)
Therefore, to get the weighted gross return is (19.62 + 17.23 + 16.09 + 21.15)/4 = 18.52%
Daily Yield = 18.52% - management fees (2%) - tax (0.36%) = 16.16%
Annual Yield = 1+(16.16/365)^365)-1 = 17.52%.
DOLLAR ACCOUNTS YOU CAN OPEN IN KENYA.
A dollar account, also known as a USD account, is a type of bank foreign currency account denominated in United States dollars (USD). It allows individuals and businesses to hold, transact, trade, and invest in/with US dollars
USD Bank Account
USD bank accounts are savings and current accounts denominated in United States dollars (USD). These accounts allow individuals and businesses in Kenya to hold, transact, and save in USD, providing access to international financial markets and facilitating cross-border transactions
USD Money Market Fund (MMF)
USD Money Market Funds are investment vehicles that pool funds from multiple investors to invest in short-term, low-risk securities such as treasury bills, commercial paper, and fixed deposits. Unlike traditional MMFs, you are required to invest using dollars as the account is denominated in USD
USD Fixed Deposit (FD)
USD Fixed Deposit accounts are investment products offered by commercial banks, microfinance banks, and other deposit-taking financial institutions that allow customers to deposit funds for a fixed period at a predetermined interest rate. These accounts offer higher interest rates compared to savings accounts and provide a guaranteed return upon maturity
USD Stable Coin Crypto Wallet
USD Stable Coin Crypto Wallets are digital wallets that enable users to store, send, and receive USD-backed stablecoins, which are cryptocurrencies pegged to the value of the US dollar. These wallets provide a digital alternative to traditional bank accounts and offer instant, borderless transactions with minimal fees
Holding funds in a dollar account provides a hedge against currency volatility, helps you diversify your cash holdings, and reduces depreciation risks associated with the local currency