Investment schemes have cut appetite for government paper and turned to fixed deposits to generate returns for savers following the introduction of new rules by the regulator.
The latest data from the Capital Markets Authority (CMA) shows unit trust schemes’ investment in fixed deposit accounts has overtaken that in Treasury bills and Treasury bonds for the first time.
Investment schemes had put Sh55.47 billion in fixed deposits during the quarter ended September last year, being 44 per cent of the Sh126.05 billion total assets under management. This is compared to 41.41 per cent that they have put in government papers.
Senior associate for debt and equity at AIB-AXYS Africa Kenneth Minjire said yesterday the shift to fixed deposits has been triggered by the chase for returns and liquidity following new CMA rules introduced last year.
The regulator introduced the Capital Markets (Collective Investment Schemes) Regulations, 2021 that require collective investment schemes (CIS) to “invest only in interest-earning money market instruments that have a maximum weighted average tenor of thirteen months.”
“The rules have restricted schemes to very short term bonds and treasury bills. So fixed deposits look more attractive because of higher return and liquidity,” said Mr Minjire.
“Liquidity on these government papers with a maturity of up to 1.3 years is low because most people holding them do so to maturity, and even if you do get liquidity, getting a good rate is quite difficult.”
The latest proportion of money in fixed deposit investment is a rise from Sh38.98 billion in September 2020 when fixed deposit accounted for 39.78 per cent of assets under management. Fixed deposits in September 2018 accounted for 20.34 per cent of total assets under management when government papers controlled 51.9 per cent. During the quarter ended September 2021, Co-op Unit Trust Scheme assets under management grew by 45.68 per cent to Sh2.19 billion from Sh1.5 billion in June 2021.
The growth, the fastest in the sector, helped Co-op overtake African Alliance Unit Trust and Zimele Unit Trust to break into the top 10 schemes by assets base.
“A comparison of quarter-on-quarter performance indicates that Co-op Unit Trust Scheme registered the highest percentage increment of 45.68 per cent,” noted CMA.
CIC Unit Trust maintained the lead with its assets growing by 10.36 per cent to Sh52.19 billion—an equivalent of 41.41 per cent market share in contrast with 38.5 per cent in September 2019.
Unit trusts are popular with investors seeking management of funds within a larger diversified and more efficient pot.
The unit trusts pool money from many investors and are managed by fund managers who then invest it in a portfolio of securities to give a return to investors.
In absolute terms, CIC Unit trust gained an additional Sh4.89 billion — the highest amount during the quarter followed by NCBA (Sh1.79 billion), Co-op (Sh685.63 million) and Sanlam (Sh485.8 million).
During the review period, six-unit trusts posted declines in assets under management, with Genghis Capital posting the highest decline (17.87 per cent).
Other unit trusts that saw declines are Amana (17.01 per cent), Cytonn (12.95 per cent), Equity Investment (4.06 per cent), Nabo Capital (2.75 per cent) and Britam (1.03 per cent).