For the past two decades, the Kenyan real estate market has grown exponentially as evidenced by its contribution to the country’s GDP which grew from 10.5% in 2000 to 12.6% in 2012 and 13.8% in 201...
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A Special Fund is a type of a Collective Investment Scheme that invests based on the Fund Managers Investment Strategy. A Collective Investment Scheme is a pool of funds from various investors who have a common goal, and in most cases, it is promoted by a fund manager. Special Funds differ from other Collective Investment Schemes given that they are established by a fund manager for the purpose of facilitating investment by a special group of individuals with a common interest in non-traditional, high-yield investment securities. Special Funds seek to maximize current income by investing into high-yield investment options while protecting and growing investors’ capital. These funds target investors seeking to diversify their portfolio and have a moderate risk/return profile, that is, they are willing to take up risk with expectation of higher return.
In Kenya, Special Funds are monitored and governed by the Capital Markets Authority and regulated under the Capital Markets Collective Investments Schemes Regulations, 2001. According to these Regulations, a Special Fund should have a Fund Manager who administers, manages and ensures that the funds from their investors are invested in accordance with the fund’s investment objective. The fund should also have a Trustee who ensures that the fund operates in accordance with regulations and that investors’ interests are protected at all times. In addition, the fund should have a Custodian, usually a bank, approved by the regulator to hold in safe custody the funds, securities or the assets of the fund.
As an investor, some of the advantages of investing in Special Funds include;
Similar to all investments, Special Funds involve some level of risk. The risks involved include; liquidity risk, credit risk, foreign exchange risk and interest rate risk. Some of the high yield funds investment options such as Real Estate, are illiquid meaning that they cannot be converted to cash easily and hence pose liquidity risk. Credit risk on the other hand arises when defaults occur. All these risks can however be mitigated through proper planning by fund managers so as to ensure investors’ funds are protected and objectives of the fund are met.
In conclusion, Special Funds concentrate their investments into high yield investment options such as Real Estate, Commodities, Derivatives, etc. which unlike the Traditional Investment Options, offer relatively higher returns. However, the high returns come in with risks. An investor is therefore obligated to do their due diligence before investing and understand the objective of the fund to ensure that their financial goals align with the fund’s investment objective. Investing in Special Funds is a viable investment decision for investors seeking higher returns, portfolio diversification and capital growth.
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For the past two decades, the Kenyan real estate market has grown exponentially as evidenced by its contribution to the country’s GDP which grew from 10.5% in 2000 to 12.6% in 2012 and 13.8% in 201...
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