Treasury bonds are a good substitute for long-term investments. For instance, last month’s auction resulted in a fixed interest rate of 14.839 per cent on a 20-year treasury bond.
This means the holder of the bond is guaranteed interest at that rate for the next 20 years, payable after every six months directly to their bank account. By comparison, few businesses or alternative investments can match such a return, at minimal risk, for such a long period of time.
A money market fund is a unit trust fund where money from members is pooled and invested only in short-term interest-earning assets like treasury bills, fixed deposits and commercial paper.
One does not need to understand the technicalities of the money market to participate effectively. This is because all investment decisions of the unit trust are handled by experienced and professional investment managers for the benefit of the members. This is convenient for busy individuals as they can generate passive income while dedicating their time elsewhere.
Most investors are better off buying government securities through unit trust funds because of diversification and convenience.
Diversification enables one to own stakes in many different bonds at varying rates of return. In Kenya, unit trusts are licensed and regulated by the Capital Markets Authority (CMA), and you can get more information on service providers on their website.
Miriam Wavinya, is a financial adviser, Zimele Research. Write to: email@example.com