MUTUKU: Before you chase a “Special Fund” yield, ask these three questions

High returns are tempting. Across Kenya, Chama meetings and investment groups carry the same urgent message: move from your money-market fund, this special fund is delivering 18, 20, even 25 per cent. Nobody wants to be left behind.

But the investors rushing in are rarely told the whole story. Special does not mean safe. A Special Collective Investment Scheme, licensed by the Capital Markets Authority, can invest in equities, real estate, infrastructure and foreign assets. That flexibility can enhance returns, but it raises risks most retail investors consistently underestimate.

Higher risk means larger drawdowns, longer recovery periods and the real possibility of capital loss, sometimes sustained over years.

When you choose a product because of its headline yield alone, you are not investing. You are speculating and the difference has lasting consequences.

The three blind spots that cost investors are: 

One, liquidity. Funds invested in real estate, infrastructure or long-dated bonds may restrict or delay redemptions, especially during market stress. School fees and medical emergencies do not wait for a fund’s notice period.

Two, currency risk. Returns quoted in dollars or euros can shrink sharply when converted to shillings. FX exposure is rarely explained at the point of sale.

Three, manager competence. Skill in money-market management does not transfer automatically to real estate or private credit. Ask: Has this team delivered in this specific asset class over a full market cycle?

How, therefore, do you make a decision? 

Request the fund’s fact sheet. Check the main assets and diversification, holding periods and redemption terms, FX exposure and all fees, including performance charges. If you need the money within 24 months, choose a liquid instrument. Special funds suit investors with a genuine long-term horizon who have taken the time to understand the structure fully.

Special funds are not inherently wrong. They are the wrong product for investors who have not understood them and the right product for those who have.

There are three questions an investor should ask—every time:

One, what are the main assets and how diversified are they? Two, how long must my money stay in, and how do I exit? Three, has this team delivered in this asset class over a full market cycle? 

If you cannot get straight answers to all three, walk away.

Building this habit in Kenya will reduce boom-and-bust cycles and create a more resilient, informed investing public.

CEO, Lofty-Corban Investments Limited