Choosing the Best Money Market Fund For You: A Personal Checklist

With around 25 money market funds available in our market, it’s crucial to recognize that, while they may operate similarly, they are not one-size-fits-all. What suits one investor’s savings plan may not necessarily suit another’s.

Here are several considerations to help you select the money market fund that aligns with your needs:

  1. Regulatory Compliance: Every money market fund should be regulated and approved by the Capital Markets Authority (CMA) of Kenya. Regulatory compliance ensures a certain level of oversight and investor protection.
  2. Investment Objectives: Money market funds generally prioritize preserving capital and maintaining liquidity while offering returns comparable to short-term interest rates. Reviewing investment fund fact sheets provides insight into the fund’s operations, including details on the custodian and trustee, how investment returns are generated, and the strategies employed for risk management. This analysis aids in understanding the fund’s approach and assessing its suitability for your investment objectives.
  3. Risk Assessment: Understanding your risk profile and tolerance is essential in selecting an appropriate fund. While money market funds are typically low-risk, variations exist based on factors such as:
    a) Quality of Underlying Assets: Evaluate the fund’s asset allocation and risk management practices to ensure high-quality assets are prioritized.
    b) Management Expertise: Consider the qualifications, experience, and reputation of the fund managers in implementing effective management strategies.
    c) Fund Size: Some investors may find comfort in larger funds or those with substantial assets under management, perceiving them as safer options.
    d) Fund’s Operating History: Assess the fund’s track record and longevity in the market. While longevity may provide a sense of security, remember that past performance does not guarantee future results.
  4. Returns Analysis: Assess the return provided by the money market fund in relation to prevailing market conditions. Reviewing the fund’s past performance gauges its ability to deliver consistent returns over time. Money market funds typically offer lower returns compared to alternative investments, prioritizing safety, stability, and liquidity. When comparing returns, consider the following factors:
    a) Management Fees: Evaluate the impact of management fees on overall returns. Some funds may have higher fees, which can lower the net yield for investors.
    b) Interest Compounding: Determine whether the fund compounds the interest earned and the method used for compounding. Different compounding methods can affect the overall yield.
    c) Tax Considerations: Take into account the tax implications associated with investment income. In Kenya, money market funds are subject to a 15% tax on returns earned, which typically applies upon redemption.
    Understanding these implications is crucial for assessing the true net yield of the fund.
  5. Accessibility: Evaluate the ease of accessing your savings or investment in terms of topping it up or withdrawing from it. Typically, you can top up anytime in a money market fund, and most require a notice period of 2-4 working days to process a redemption. Some funds have conditions on the number of free redemptions per month, while others have a minimum holding period that limits you from accessing your investment. You may redeem funds to your mobile money app, bank account, or possibly to a third party.
  6. Minimum Investable Amount: Evaluate the minimum investable amount required by the fund, including the initial investment, minimum top-up amounts, and the minimum balance allowed when withdrawing funds.
  7. Digital Integration: Consider your preference regarding the use of physical paperwork versus a fully digital management system when interacting with the fund. Evaluate whether you prioritize the convenience and efficiency of digital transactions, which may include online account management, electronic documentation, and seamless transactions through digital platforms, or if you prefer traditional methods involving physical forms and paperwork for managing your investments. Assessing your comfort level with digitalization can help determine the most suitable money market fund for your needs and preferences in terms of accessibility and ease of use.
  8. Your Investment Objectives: Determine your financial goals and whether the fund aligns with them, considering factors like capital preservation, liquidity needs, and desired returns.

By carefully considering these factors, you can make an informed decision about whether a money market fund aligns with your investment objectives and risk tolerance. Additionally, consulting with a financial advisor can provide personalized guidance based on your financial situation and goals.

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