Money Market Funds – Crash Course

money market funds

Money market funds are one of the best investment methods even for anyone who has never invested before.

If you’ve never quite understood what they’re all about, here is everything you need to know.

Now get your notebook and your pen and let’s dive in.

What Are Money Market Funds

Money market funds fall under an umbrella of investments called unit trusts.

A unit trust is a form of collective investment scheme whereby a company/ investment firm pools money or collects money from different investors and invests that money on their behalf.

Under unit trusts, we have 4 major funds:

  • Money Market Funds
  • Bond Funds
  • Balanced Funds
  • Equity Funds

The major difference between the four funds is where your money is being invested for you.

Since our focus is money market funds, where exactly is this money being invested?

Here’s what happens, an investment company that has the money market fund product will collect money from you and thousands of other Kenyans and invest that money in 3 places.

  • Treasury bills (short-term government debt securities)
  • Short-term corporate debt
  • Well-negotiated for bank deposits. 

The reason why some of it is invested in bank deposits is that MMFs are meant to be liquid. This way, if you or someone else wants to withdraw, then you can still access your money in 2 to 4 working days.

Now that you understand exactly where your money is being invested, it’s important to know some of the risks of money market funds.

Risks Of A Money Market Fund

It’s important to note that there is no way of investing that is 100% safe.

That’s also the case with MMFs.

When you’re looking at risks associated with any investment method you need to know which category it falls under. Is it a low-risk, medium risk or high-risk kind of investment?

Money market funds fall under low-risk investments.


Because the underlying assets, i.e where your money is being invested, are assets that are considered to have very low-risk exposure.

Here are some risks associated with Money Market Funds.

  1. Interest rates are ever-fluctuating.

The major risk associated with money market funds is that the interest rate fluctuates on a daily basis.

There is no fixed interest rate per annum or per month in MMFs.

Depending on the prevailing market conditions, the interest rates in Kenya will oscillate between 7% to 10%.

When they calculate the average per month or per year, they’re able to tell you the average interest rate or what they call the effective annual yield of a particular money market fund.

Before the pandemic, interest rates were as high as 12%. Since then, the global markets and interest rates have been affected hence the low-interest rates.

  1. The interest rates are dependent on the economic state.

Especially in economic seasons like the one we are in currently, money market funds are currently on the same level as the cost of inflation which is at 7%.

  1. Lower returns compared to other investment methods.

Since MMFs are a low-risk investment method, they also have a lower return compared to medium and high-risk investments such as EFTs.

Best Advantage Of Money Market Funds

  1. Your capital remains intact.

The good thing with MMFs is that even with the low risk that is associated with them one thing that is guaranteed is that as much as the interest rates may change, the amount of money that you’ve invested (your capital) remains intact.

They guarantee capital preservation. You get to kill two birds with one stone.

On one hand, you’re able to save because you get capital preservation and on the other hand you get to invest because your savings are earning interest. 

  1. Your interest is compounded on a monthly basis.

With money market funds, your interest is compounded either on a daily basis or on a monthly basis.

With compound interest, it is a factor of time. The longer you stay invested, the more you will experience the greater effects of compound interest.

For instance, if you invested 1 million last month and the interest you earned this month is 6,000, they will take the 6,000 and reinvest it back in month two and now your principal will no longer be 1,000,000 it’s going to be 1,006,000. Then probably you earn interest that month and get to 13,000, in month 3, your principal will no longer be the 1,006,000 it’s going to be 1,013,000.

This makes money market funds a good alternative for saving as compared to using banks.

Banks and Money Market Funds Comparison

Banks use the simple interest calculation method or what is commonly known as the straight-line method. If you put your money in a bank your principal from January to December will still remain at 1 million unless you top up with more money.

However, if you put your money in a money market fund even if you don’t top up throughout the year your interest keeps accumulating because of compound interest.

If you opened a fixed deposit account that gives you 9% per annum and you also opened a money market fund that gives you the same 9% per annum, within the first 2 to 6 months or even a year, the difference won’t be very significant.

But when you leave your money for about 2 years in the MMF you will start realizing the differences.

You’ll still make more money or get better interest from the MMF than the bank considering you have the same-same interest on both.

This is just based on how your interest is being calculated, banks – simple interest, MMFs – compound interest.

If you’d like to calculate or figure out how much money you’ll need to invest to make an x amount of money in your money market fund,

Click here to access the compound interest calculator.

How To Best Utilize Money Market Funds

  1. For goal-based savings.

Money Market Funds are best for goal-based savings or goal-based investments.


  • Emergency Funds
  • Sinking Funds

You can best utilize money market funds for emergency funds where you put money that you would like to act as your safety net in case anything was ever to happen to your job or source of income. You can easily withdraw to pay your bills, clear hospital bills or use the money for a rainy day.

Another goal-based account you can open is a sinking fund whereby you save up for specific purchases. You can save up for a car, a travel destination, school fees, etc.

Since you’ve taken money out of your current account, you’ll not have the temptation of using that money haphazardly. 

You can open as many MMFs as you’d like and give them a specific purpose.

2. As a parking spot.

MMFs also serve as a good parking spot for the money you would like to invest later.

How To Withdraw From Your Money Market Fund

For most of them what you’ll need to do is send a request-to-withdraw email with:

  • Your name
  • Account number 
  • Amount you want to withdraw 

Usually, you’ll get a response after 5 to 6 hours confirming receipt of your request.

Within 2 to 4 working days, you’ll have access to your money.

Some account options like Zimele and Britam have an option where you can withdraw your money directly to your MPesa through their app, portal or SSD.

What To Look For While Considering A Money Market Fund

The difference between the money market funds we have in Kenya is so little, almost close to none.


Because all of them are in one market, the Kenyan market. Also, they’re all investing in the same Kenyan treasury bills offered by the Central Bank of Kenya.

So what do you need to look for when considering a money market fund?

  1. Interest rates within the market average.

The only notable difference between the money market funds in Kenya is the corporate debt they have and how well they can negotiate the bank deposits.

The market average right now is between 7% and 10% mainly because of the current state of inflation. 

The market average is ever-changing and at a particular time, you’ll find that option A is giving 8% and option B is giving 9%. After a while, there may be a shift and you’ll find that option B is now giving 8% and option A is giving 8.9%. 

When you compare different options over time, let’s say 1 year, you’ll see that there’s actually no difference. 

However, this being said, it’s possible to find companies offering a much higher interest than the market average.

If you choose to focus on an option that offers a higher interest rate like 12%, you need to be curious about what market they are operating in and what level of risks they are exposing your money to, so that they can make a higher interest than the market average.

Note: there are no anomalies in the market. There is so little a company can do to differentiate its returns.

  1. Longevity and transparency of a company.

Another factor you need to look at when considering a money market fund is how long a company has been around and how transparent they are.

I personally love to invest in companies that have been around for over 15 years. This is because they already have a proven track record. I get a level of confidence if the company has been around for a while.

Also, companies that share their interest rates, reports and fact sheets on their websites prove that they are transparent in their activities.

Companies that have been around for a while also publish their daily interest rates in the newspapers which is actually a requirement by the Capital Markets Authority. This also shows their transparency.

  1. Interest rates that compensate you for inflation.

When choosing a money market fund, always aim for one that’s giving you a return of higher than 7% on the bare minimum.

This is considering the inflation rate in Kenya which is currently at 7%.

The most important thing in any simple investment is that you get a return that compensates you for inflation.

In this case, considering our inflation rate in Kenya, you should go for a money market fund that gives you a minimum of 7% as their interest rate.

  1. The company’s reviews

Before choosing a money market fund, you need to enquire from other people about their past experiences with that company.

Some questions you need to ask are:

  • How is the ease of withdrawing money?
  • How responsive is their customer service?


Money market funds are not a get-rich-quick scheme.

As good an investment as they are, you cannot expect to put in money for two or three months and expect to be rich-rich.

You need to invest regularly and consistently before you can see the fruits of your labor.

Read more about why you might be disappointed in your investments here

You cannot money market fund your way to financial freedom. This is the barest minimum investment that you will ever have to make.

If you need financial freedom you will have to do more than just MMfs. Remember they are a low-risk investment hence a low returns method.

Some of the best money market funds companies in Kenya include, but are not limited to:

  • CIC
  • Sanlam
  • Zimele
  • Britam
  • ICEA
  • Nabo Capital

Remember, do your due diligence on research before you decide to go with a particular money market fund.

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