Frequently Asked Questions (FAQs)
1. In Kenya's MMFs, is compounding done monthly?
Interest in MMFs accrues daily, not monthly. The rate you see (e.g., 13% p.a.) is annualized, but funds calculate it on a daily basis. Compounding is effectively daily, with returns credited monthly.
2. Are fees deducted monthly or annually?
Management fees (e.g., 2% p.a.) are prorated daily and deducted before returns are credited. This means the published yield is usually net of fees, but before withholding tax.
3. Is the highest rate always the best?
Not always. A higher rate may come with higher risk or less liquidity. Always compare the provider's reputation, stability, and withdrawal terms.
4. How much tax is charged on MMF returns?
In Kenya, interest earned from MMFs is subject to a 15% withholding tax, applied when your returns are paid out.
5. Are there penalties for withdrawing monthly?
Most MMFs in Kenya allow free monthly withdrawals, but some may impose limits (e.g., one free withdrawal per month) or small admin charges. Always check the fund's terms.
6. How do MMFs compare to banks or SACCOs?
MMFs usually offer higher returns than savings accounts, and more liquidity than SACCO fixed deposits. They are also regulated by the CMA in Kenya.