Capital Markets
Unit trusts invest bulk of funds in bank deposits
Thursday September 14 2023
Collective investment schemes have the bulk of their assets invested in fixed deposit accounts. PHOTO | SHUTTERSTOCK
Collective investment schemes have the bulk of their assets invested in fixed deposit accounts, which are usually offered by commercial banks.
New data from the Capital Markets Authority (CMA) shows the investment funds, which are also referred to as unit trusts are largely invested in banks with 44.4 percent of their assets or Sh78.1 billion locked in the term deposits accounts as of June this year.
Read: Unit trusts cut fixed deposits to hoard cash in quarter to March
The allocations to fixed deposit accounts beat investments into securities issued by the government which tallied to Sh75.3 billion or 42.8 percent of their portfolios.
The leverage on banks’ fixed deposit accounts implies that unit trusts would derive the bulk of their income, which is paid out to unit holders, from interest paid out by banks to its high-value depositors.
At the same time, the unit trusts are a significant source of deposits for commercial banks who subsequently apply the deposits to onward lending to customers and the purchase of government securities.
Outside fixed deposits and government securities, the unit trusts hold assets as cash and demand deposits with total assets under management in the liquid form standing at Sh9.2 billion or 5.3 percent of total funds as of June.
Other asset classes for the pooled funds include listed securities (shares), immovable property, investments in peer funds (other collective investment schemes), unlisted securities and off-shore investments.
Unit Trusts can invest up to 80 percent of their assets in listed securities and securities issued by the government while investments in immovable properties, other collective investment schemes, unlisted securities and off-shore investments are capped at 25 percent each.
Pooled investments have no caps on investments in cash and demand deposits or fixed deposits meaning the unit trusts can pour all their assets into the pair of investment classes.
The CMA has approved 35 collective investment schemes or unit trusts, made up of 127 funds with the most popular fund being the money market fund.
The pooled investment schemes have proved popular among retail investors, presenting the opportunity to earn an enhanced return in contrast to yields earned from regular saving accounts.
At the same time, the unit trusts provide retail investors with exposure to other asset classes including equities and fixed income at significantly lower entry levels.
“The assets under management increased steadily over the past six years from Sh56.6 billion as of March 31. 2018 to Sh175.97 billion as at June 30, 2023,” the CMA noted.
Read: Unit trusts: How not to lose your hard-earned cash
Other types of funds by unit trusts outside money market funds which invest in cash, demand and fixed deposits are fixed income funds, equity funds, balanced funds and other funds including enhanced yield funds, growth funds and dollar funds.
