Unity Trust Funds Industry in Real Estate Explained

Depending on the underlying security, the Unit Trust Funds generate returns in the form of dividends, interest income, rent, and/or capital gains.

Unity Trust Funds Industry in Real Estate Explained

Unit Trust Funds are investment vehicles that pool investor funds under the management of qualified fund managers. In order to provide returns consistent with the fund's specific objectives, the fund management invests the pooled money. Depending on the underlying security, the Unit Trust Funds generate returns in the form of dividends, interest income, rent, and/or capital gains. The main types of Unit Trust Funds include:

1. Money Market Funds

These funds invest in fixed-income instruments like commercial paper, treasury bills, and fixed deposits. They are suitable for risk-averse investors since they are highly liquid, and have stable returns.

2. Equity Funds

These are funds that largely invest in listed securities and seek to offer superior returns over the medium to long term by maximizing capital gains and dividend income. The funds invest in various sectors to reduce concentration risk and maintain some of the fund’s cash in liquid fixed-income investments to maintain liquidity and pay investors without losing value.

3. Balanced Funds

 These are funds whose investments are diversified across the Equities and the Fixed Income market. Balanced Funds offer investors long-term growth as well as reasonable levels of stability of income,

4. Fixed Income Funds

These are funds that invest in interest-bearing securities, which include treasury bills, treasury bonds, preference shares, corporate bonds, loan stock, approved securities, notes and liquid assets consistent with the portfolio’s investment objective, and,

5. Sector-Specific Funds

These are funds that invest primarily in a particular sector or industry. The funds provide a greater measure of diversification within a given sector than may be otherwise possible for the other funds. They are specifically approved by the Capital Markets Authority as they are not invested as per the set rules and regulations.

According to the Capital Markets Authority (CMA), Unit Trust Funds have registered tremendous growth over the last five years.

The growth can be largely attributed to:

1. Low Investments minimums

The majority of the Unit Trust Funds Collective Investment Schemes (CIS) in the market require a relatively low initial investment ranging between Kshs 100.0 - Kshs 10,000.0. This has in turn promoted financial inclusion by allowing even small-scale investors to access professionally managed investments opportunities

2. Increased Investor Knowledge

There has been a drive towards investor education mainly by the Capital Markets Authority (CMA) and the fund managers on the various products offered by trust funds, which has meant that more people are aware and have a deeper understanding of the investment subject. As a result, their confidence has been boosted leading to increased uptake,

3. Diversified product offering

Unit Trust Funds are also advantageous in terms of providing investors with access to a wider range of investment securities through the pooling of funds. This allows investors the opportunity of diversifying their portfolios which would have not been accessible if they invested on their own. Additionally, they also ensure investors are able to shield themselves against the risks associated with market volatility associated with some asset classes

4. Adoption of Fintech

Digitization and automation within the industry have enhanced cash accessibility, enabling investors to immediately access their investments via mobile payment platforms. According to the Central Bank of Kenya, more individuals are transacting through mobile money services as evidenced by the increase in the total number of registered mobile money accounts to 77.3 million in May 2023, up from 41.7 million recorded in May 2018.

5. Competitive returns

Positive performance and competitive returns have been instrumental in attracting investors to unit trust funds. As these funds consistently outperform certain traditional investment options, more investors are drawn to their potential for generating wealth over the long term

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