As Kenya’s investment space becomes more sophisticated, investors have more options than ever before to pick from. Generally, this is a good thing since it enhances financial inclusion.
However, someone who is just starting out may be confused about which fund to sink his/her capital into. Take, for example, how fund managers offer one version of a fund in Kenya shillings and another denominated in a foreign currency. As a novice investor, which one should you choose?
Unless stated otherwise, all investments you make in Kenya have their base currency in the Kenya Shilling (KES). This does not necessarily mean that your funds are invested in Kenyan assets only. It just means that your capital and any returns you earn will be accessible to you in Kenya shillings.
On the other hand, some fund managers offer specialized alternatives to their funds that are denominated in a foreign currency, most commonly the US dollar or the British pound. Usually, these funds are identical to their KES counterparts, apart from the base currency and the rate of return on offer.
There is an obvious temptation to go for funds that are denominated in USD or GBP over KES, regardless of your situation. However, funds that are based on a foreign currency are designed for investors whose receivables are in the same currency.
Basically, if your salary, rental income, or any other money you make is in USD, you should invest in the USD version of the fund you are considering. The same goes for GBP or any other foreign currency. Investing in this manner will help you eliminate currency exchange risk. Similarly, if most of your income is in KES, prefer the KES version of the fund.
Does this mean that you cannot invest in a USD fund if most of your receivables are in KES? No, it doesn’t.
In fact, there may be benefits to investing in a foreign currency-based fund. For starters, it will allow you to diversify your local currency investments by including some foreign currency exposure. Additionally, it reduces the outflow of foreign currencies from Kenya, leading to a more active investment space.
In conclusion, the main reason you should invest in a fund that is denominated in a foreign currency, such as the USD or GBP, is if your earnings are in that currency. You can still invest in a foreign-denominated fund if your receivables are in KES, as a way to diversify your local currency investments.
To speak to a financial advisor about achieving financial security, email info@rib.co.ke
