8 Thoughtful ways to invest your salary

Are you looking to grow your savings? Here are eight simple ways that can grow your money and cost you very little effort.

PS: You need to diversify. As they say, don’t put all your eggs in one basket.

1. TREASURY BILLS

This is the least-risky avenue. The way T-Bills work is that you loan money to the government and you are paid back with interest. Usually, you get your interest upfront and your principal at the end of the allotted period. How much interest you earn varies depending on when you applied for the T-Bill as every week, the rates change.

a.) To begin your application, open a CDS (Central Depository System) account with Central Bank of Kenya. Some banks can assist you with the process.

b.) Decide the period for which you are loaning the money. The current timelines are 91, 182, and 364 days. When the period expires, the money is deposited into your bank account.

Check out the Central Bank of Kenya web page for more details.

2. BANK DEPOSITS (FIXED DEPOSITS AND SAVINGS)

Returns are generally low but it is a fairly secure option. The only risk here is the credit risk, like what happened with Chase Bank, Imperial Bank and Dubai Bank among others. The return for your money is the interest that you make on it. The current interest rates are a minimum of 7.25 per cent.

3. TREASURY BONDS

These are like T-Bills, with the difference being that bills are short-term borrowing by government while bonds are long term. Anything that is above 12-month duration is a bond, and the repayment period can be as long as even 25 years. You also bid on the interest rate during the auction of the treasury bonds, after which it is fixed.

The Central Bank of Kenya is an agent of the government and therefore issues treasury bonds on the government's behalf. It is a means the government uses to finance itself, much like T-Bills. Treasury bonds offer you interest payments every six months throughout the bond’s maturity. Treasury bonds are available every month through the Central Bank of Kenya and you can also buy them on the stock market.

4. CORPORATE BONDS

These are issued by companies (as a way of raising working capital) and may or may not be listed on the Nairobi Securities Exchange. The unlisted ones are riskier but also generate a higher return. If unlisted, you can find out about them from various stockbrokers and investment banks. Whether you can access them or not depends on availability. People do not usually trade corporate bonds. They like to hold them because of the high returns over a period of time.

5. UNLISTED EQUITIES

These include things like a friend or brother’s business. You can also invest in these through chamas. Entrepreneurs looking for equity for their business sometimes approach chamas.

6. COMMERCIAL PAPERS

These are short term loans to existing businesses to finance their working capital. You get your returns from the interest earned. This is comparable to a T-Bill. These are not as risky as bonds but are riskier than government T-Bills. Almost any stock brokerage or investment bank will be able to advise you on the best way to go about it.

7. LISTED STOCKS

Listed stocks are those listed on the Nairobi Securities Exchange (NSE). These are riskier but have a higher return. With stocks you get money either through capital appreciation or dividends. Dividends refer to the interest a shareholder makes at the end of the year when profits are distributed. Capital appreciation is when the stock price goes up and then you can make money by selling at that higher price than what you bought them for, which you do through a stockbroker. To begin, you need to open an account with a licensed stock broker. According to investinginafrica.net, your best bet is with stock brokers that offer an online trading platform, as online trading gives you the freedom to buy and sell shares whenever and wherever you want. The site’s list of Kenyan stockbrokers that presently offer online trading are AIB Capital, Dyer and Blair, Faida Investment Bank, Genghis Capital, Kingdom Securities, NIC Securities, SBG Securities and Suntra Investment Bank.

8. MUTUAL FUNDS

In Kenya they are referred to as unit trusts. They operate like a chama, in that they are pooled resources, where you contribute money and it is pooled together with that of other investors, and then that money is invested into a certain investment product by the fund manager. The returns are then distributed over certain periods, such as monthly or every six months. The different types available in Kenya are

1. Money Market Fund – It is for those who are averse to risks. The advantages of money market funds include; their low risks since the monies are invested in securities which have a fixed and secured rate of interest.

The investor is also assured of the principal sum plus interest at any given time.

The following options have higher risks and higher returns.

2. Fixed Income Fund – Invests in securities that give specific returns on specific dates i.e. T-Bills, bonds, cash deposits etc

3. Balanced Fund – Balanced Funds invest in a diversified portfolio of shares, bonds and the money markets.

4. Equity Fund – Invests in company shares through the stock market.

5. Bond Fund – Invests in government and corporate bonds.

6. Managed Fund – It pools the collective investments of the employees in a company with returns made available upon their retirement.

You can access them through licensed mutual fund companies such as Old Mutual, African Alliance, Britam, Commercial Bank of Africa, Zimele, ICEA, CIC and Dyer and Blair.