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Unit Trusts 101: A Simple Guide to Unlocking the Best Returns

Investing your hard-earned money is one of the most critical steps to attaining your financial objectives. However, navigating the complex world of investments can be daunting, especially if you are unfamiliar with the various options available, the range of alternatives, and the intricate world of investments.

One investment avenue that has gained popularity in Kenya is unit trusts. Investing in unit trusts is a reliable and rewarding way to grow your money. However, with many options available, figuring out where to start can take time. Fear not; in this comprehensive guide, we will take you on a journey to understand the world of unit trusts, how they work, and how you can unlock the best returns on your money through these investment vehicles.

What are Unit Trusts?

Unit trusts, also known as mutual funds, are collective investment schemes that pool money from individual investors to invest in a diversified portfolio of assets. These assets may include stocks or equities, bonds, real estate, and other financial instruments. Professional fund managers operate the Unit trusts and make investment decisions on behalf of the investors.

In Kenya, the Capital Markets Authority (CMA) regulates unit trusts and offers an accessible and convenient way for individuals to participate in the financial markets. But how do they work?

How Do Unit Trusts Work?

Unit trusts collect (‘pool’) money from different people and invest in various market assets depending on the type of unit trust. These assets include government and corporate bonds, bills, commercial papers, cash, bank deposits, and shares. The pooling of your money creates greater buying power so that you can invest in a broader range of investments than would be possible for most individual investors.

How do unit trusts work

The investment manager decides which assets to buy, in line with the objectives of the Unit trusts, whether it aims for capital growth, income generation, or a balance between the two. As the investor, you benefit from both the interest earned and capital growth.

What Are the Different Types of Unit Trusts?

Below, you can observe how different investment objectives and risk profiles in Kenya are met by tailoring various unit trusts. Each type has different features, risks, and rewards, so let’s look at these categories individually.

Types of unit trusts

Money market funds.

Money market funds invest in short-term investments that have relatively low risks. These are generally the safest, most stable securities available, including treasury bills, certificates of deposit, and commercial paper. They offer comparably higher returns than that from bank accounts, and you’re less likely to lose your initial investment.

Bond funds.

Bond funds mainly invest in debt instruments, including government and corporate bonds. They typically have higher risks than money market funds because they aim to produce higher returns. Because there are many different types of bonds, the risks and rewards of bond funds can vary dramatically.

Equity funds.

Equity funds exclusively invest in stocks (shares). They entail a higher level of risk when compared to other unit trusts.

Balanced funds.

As the name suggests, balanced funds invest in different asset classes, including stocks/shares, bonds, and money market instruments. Their main objective is to reduce risk by spreading investments across multiple asset classes.

What are the Benefits of Investing in Unit Trusts?

Unit trusts are an excellent choice for beginners looking to start their investment journey. Here’s why:


Unit trusts allow you to invest in a diverse range of assets without needing a lot of capital. This diversification helps spread risk and reduces the impact of any single investment’s performance on your overall portfolio.

Professional Management

Experienced fund managers manage unit trusts by analyzing market trends, selecting suitable investments, and actively monitoring portfolios. Their expertise can be beneficial, especially if you need more time or knowledge to manage your investments actively.


Investing in unit trusts is relatively straightforward, requiring minimal paperwork. It enables you to participate in the financial markets without extensive financial knowledge or experience.

What are the Risks and Fees Associated with Unit Trusts?

While unit trusts offer many advantages, knowing the risks and fees is essential. Some of these include:

  1. Market volatility is the risk of fluctuating values in a mutual fund’s investments, influenced by broader market movements, such as those in the stock or bond markets.

  2. Changes in interest rates. Unexpected fluctuations in interest rates may result in a decline in the value of an asset.

  3. Management fees. Most unit trusts in Kenya charge a 2% to 2.5% annual management fee. It is also worth noting that a 15% withholding tax is set on the interest income earned from the investment.

  4. Exit Fee. This is the fee on an investor’s proceeds when they exit the fund.

What are the factors to Consider When Choosing a Unit Trust?

  1. Investment Objective: Determine your investment goals, whether long-term capital appreciation, regular income, or a balanced approach. Look for a unit trust that aligns with your objectives.

  2. Risk Tolerance: Assess your risk tolerance and select a unit trust that matches your comfort level. Higher-risk funds may offer greater potential returns, but they also come with increased volatility.

  3. Fund Performance and Track Record: Evaluate the historical performance of the unit trust and its consistency over different market cycles. Consider factors such as returns, volatility, and risk-adjusted measures.

  4. Fund Manager Reputation: Research the fund manager’s expertise, experience, and track record. A skilled and trustworthy fund manager can significantly impact the performance of the unit trust.

  5. Fees: Compare the fees of different unit trusts. While fees shouldn’t be the deciding factor, they affect your overall investment returns.

How to invest in Unit trusts with ndovu.

At ndovu, we open the world of investing in unit trusts to you!

Whether you’re a seasoned investor or just getting started, consider exploring the world of unit trusts in Kenya. Investing in different asset classes provides diversification and reduces risk for individual investors. And with the convenience of easy access and management, they have become an increasingly popular choice for Kenyans looking to grow their wealth.

It’s important to note that, like any investment option, investing in unit trusts involves risks, and it’s essential to do your due diligence before investing.


The price of shares and the income therefrom if the collective investment scheme pays dividends may fluctuate; you are reminded that in certain specified circumstances, the right to redeem shares may be suspended.

The information provided on this platform, as well as the products and services offered, are intended solely for persons in regions and jurisdictions where such distribution and utilization are in accordance with local laws and regulations.

ndovu does not promote its services in regions where it lacks the necessary licenses; It is exclusively available to persons residing in countries where it holds a valid license or has licensed partners. ndovu does not extend its services to citizens of the United States, Canada, Japan, and other restricted territories.

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