Frequently Asked Questions (FAQs)
1. In Kenya's MMFs, is compounding done monthly?
Interest in MMFs accrues daily, not monthly. The rate you see (for example, 13% per annum) is annualized, but funds calculate returns on a daily basis. Compounding is therefore effectively daily, with returns credited monthly.
2. Are fees deducted monthly or annually?
Management fees 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, lower liquidity, or operational issues. Always consider the provider’s reputation, stability, and withdrawal terms.
4. How much tax is charged on MMF returns?
In Kenya, interest earned from Money Market Funds is subject to a 15% withholding tax, which is applied when returns are paid out.
5. Are there penalties for withdrawing monthly?
Most MMFs allow free monthly withdrawals. However, some funds may limit the number of free withdrawals or charge small administrative fees. Always review the fund’s terms.
6. How do MMFs compare to banks or SACCOs?
MMFs typically offer higher returns than bank savings accounts and greater liquidity than SACCO fixed deposits. They are regulated by the Capital Markets Authority (CMA) in Kenya.