When it comes to financial investments in Kenya, two popular options are drawing attention from investors: Money Market Funds (MMFs) and Savings and Credit Cooperative Organizations (SACCOs).
Both offer appealing returns, but which is better for an investor looking to maximize dividends on a Ksh 1 million investment?.
Should You Invest Ksh 1 Million in a Money Market Fund or a SACCO?
The potential gains from both MMFs and SACCOs vary depending on risk tolerance, liquidity needs, and return expectations. Here’s a look at each option, using typical rates from the current market.
Money Market Fund (MMF) Overview
Money Market Funds have become increasingly popular in Kenya for their stability and liquidity. With an average annual return of around 11% after fees and taxes, a Ksh 1 million investment would grow to Ksh 1,110,000 in a year, adding Ksh 110,000 in compounded interest.
SACCO Investment Returns
SACCOs, which are deeply rooted in Kenya’s cooperative culture, offer both high returns and credit facilities for members. For this analysis, let’s look at a SACCO offering 17% on share capital and 11% on deposits.
Splitting the Ksh 1 million investment into Ksh 300,000 as share capital and Ksh 700,000 as deposits, the returns at year-end would be as follows: Ksh 48,450 in dividends from share capital and Ksh 79,800 in interest from deposits, totaling Ksh 128,250.
Comparing the Returns: Money Market Fund vs. SACCO
With a return of Ksh 128,250, the SACCO option edges out the MMF’s Ksh 110,000, delivering Ksh 18,250 more over a year. Although the difference isn’t massive, the SACCO takes the lead for investors interested in maximizing short-term returns within a year.
Long-Term Considerations
SACCOs, while generally safe, can be subject to operational risks. MMFs offer better liquidity than SACCOs. Your investment goals should guide your choice. When considering your investment options, it’s crucial to weigh the risks and rewards of each.
SACCOs may offer higher potential returns, but they also come with greater risk. MMFs, on the other hand, are generally considered safer and more liquid, but they may offer lower returns.
Read: The Top 10 Loan Apps With the Lowest Interest Rates in Kenya
Financial Inclusion and the Impact of SACCO Lending
Beyond individual gains, SACCOs play a crucial role in Kenya’s economy, with thousands of businesses funded, countless communities gaining access to formal financial services, and noticeable stimulation of local economic growth.
In fact, by August 2024, SACCOs had loaned Ksh 749 billion, fueling growth for numerous businesses across the country.
Cytonn Report on Money Market Fund Yields
For investors considering MMFs, recent data from the Cytonn Report in October 2024 reveals strong performance across funds, with top MMFs achieving yields up to 18.1%. These high returns reflect the appeal of MMFs for investors looking to maximize gains while maintaining liquidity.
