How Unit Trusts Work and Why You Should Invest in One

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Article by: Steve Muriithi

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Many a time when we read about the net worth of wealthy individuals locally and globally, we imagine that they have that amount of money in their bank accounts. For instance, if Mr Mapesa is said to be worth USD 1 million, most people will imagine he has USD 1 Million in his bank account. This, however, is rarely the case. Reason being, wealthy people don’t keep their money in banks, they invest. They only use banks as a transactional tool and invest their cash elsewhere. Let’s get your money out of the bank and deep dive into how to invest in unit trusts.

How unit trusts works?

Unit trusts are monies pooled from different investors and in turn invested in various opportunities available in the market, commonly known as underlying assets. These include government and corporate bonds and bills, commercial papers, cash and bank deposits, shares, among others. The investment manager, makes the decision about which underlying assets to buy, in line with the objectives of the unit trusts.

When you purchase unit trusts, the units you have acquired are a representation of a portion of the unit trust and while the unit trust itself owns the underlying asset, you get to benefit from both the interest earned and capital growth.

Each unit trust should have a fund fact sheet and prospectus, these two documents indicate the unit trust objectives, fees, risks involved and other information. You should always ask for these documents before deciding which unit trust to purchase. The documents also detail the recommended investment periods.

Benefits of owning unit trusts

A good way to invest in stocks and bonds indirectly: Unit trusts have stocks and bonds as their underlying assets, in varying proportions based on the type of unit trust. This is largely decided by the investment manager.

Professionally managed: Unit trusts enable you to reap the benefits of having your money invested by knowledgeable people who are well placed to make informed investment decisions on your behalf.

Regulated by CMA: Capital Markets Authority regulates all the unit trusts on Kenya, thereby safeguarding your investment. CMA describes unit trusts as, safe havens for less sophisticated investors with little capital in the market.

A good way to diversify your investment: With a unit trust, your investment is already diversified since each fund is invested in different stocks and bonds and other assets.

Compound growth, the secret sauce to growing wealth: You can decide to reinvest your interest and purchase more unit trusts thus reaping from the immense benefits of compound interest.

Liquid investment: Your investment is easily accessible and you can access your investment in less than 7 days with most of the funds. Britam’s Money Market funds allow you to receive your investment within 48 hours on your Mpesa. You can also use your unit trust investment to secure a loan. The Equity Fund at Old Mutual allows you to use it to secure a loan if you need to.

Emergency fund: Uncertain times, like the COVID-19 pandemic, call for preparedness. Unit trusts are a good way of building up an emergency fund.

More interest than a savings account: Money saved in banks only bring marginal returns. The unit trust fact sheet gives you a snapshot of previous interest rates of return, enabling you to have a rough idea of what rates you are likely to get. For example, Sanlam’s Money market fund charges 9% interest annually after deducting the management fees. This interest rate is much more than what you would get from savings accounts in many banks. One can invest in unit trusts as they take time to learn about other investments.

Types of funds

There are a variety of funds available with varying levels of risks and returns. The most common are;

Money market fund: Ideal for investors with a minimal risk profile as it seeks to preserve your capital. Invests mostly on bonds, treasury bills and fixed deposit accounts.
Equity fund: These are high-risk high return investments. They are mostly invested in shares, as the name implies. Some equity funds like Britam’s equity fund invest in offshore listed companies.
Balanced fund: This one invests in diversified asset classes with a balanced risk and return. It is a medium risk investment.

With as little as Kshs 1,000, you can start investing in unit trusts with Britam Money Market Fund, or Old Mutual Money Market Fund. With Sanlam, you can purchase unit trusts with any amount starting from Kshs 2,500.

In some companies, you can switch between funds, for example, move from money market fund to balanced fund. Sanlam allows you to switch to other funds, once every month for free. At ICEA LION, you need a minimum of Kshs 10,000 to start investing in unit trusts. Standard Chartered allows you to purchase, sell or switch funds through their mobile app 24/7, and you can start investing with Kshs 10,000. With Britam, you can commence your investment through a USSD code, *778#. In most of these firms, you can top up your investment through Mpesa. This gives you the flexibility you need to increase your investment when you get that extra Kshs 500.


Most unit trusts charge an annual management fee of 2% to 2.5%. It’s important to get the correct management and administrative fees levied when buying and also when selling, from the fund prospectus and fact sheet. You also get charged 15% withholding tax on the interest you earn from your investment. It’s imperative to note that past performance of unit trusts, is never an indication of future performance. Prices rise and fall depending on the underlying investment asset.

There is a famous Chinese proverb that goes, “The best time to plant a tree was 20 years ago, the second best time is now”. Heed this advice and start investing in unit trusts with the Kshs 1,000 you have today. You won't regret it.

Disclaimer: This article only serves to create awareness and does not endorse the purchase of any particular unit trust. Figures used are actual amounts as reported by the mentioned firms in this article.