Rising interest rates on Treasury bills and other short-term debt instruments have helped lift returns offered by money market funds (MMFs), which invest primarily in commercial banks, fixed deposits and government securities.
An analysis by the Business Daily shows that the annualised returns on the funds popularly known by their acronym MMFs have climbed since March, coinciding with the lift in interest rates on the short-dated Treasury bills.
The rising MMF returns have halted a drag in returns on the funds that had been ensuing since the start of the year as both T-bill and fixed deposit rates fell on easing inflation before the US-Israel war on Iran created a new shock, forcing investors to push for higher returns from government securities.
Top MMFs are offering an annualised rate of up to 12 percent as of June 26 compared to 11.13 percent on March 31 and higher than a top rate of 11.96 percent at the end of 2025.
Cytonn MMF, which is the top-yielding fund, posted an annual rate of 12 percent in June 2026 from 11.13 percent on March 31 and 11.96 percent on December 31.
Other top MMFs by annualised returns include Etica and Lofty-Corban, which posted returns of 10.7 percent and 10.62 percent, respectively, on June 26.
More funds have shown a similar trajectory in annualised returns over the same period to underline the general rise in earnings by investors.
The published annualised return by a money market fund usually shows the earnings rate offered to investors through the previous 12 months, net of fund management fees that typically stand at two percent.
Fund managers note that most MMFs had invested in longer-dated government bonds to help hold up returns above double-digit as overall interest rates came down last year, and at the beginning of 2026.
The Capital Markets Authority (CMA) requires MMFs to invest in assets with an average weighted tenor of 18 months.
This means that MMFs can still invest funds in longer-dated Treasury bonds but keep the bulk of assets in cash and near-cash instruments.
“The main reason why returns on money market funds have remained in double digits is because of legacy investments (longer dated Treasury bonds),” said Fred Mburu, Chief Executive at the Fund Managers Association.
“My expectation was that returns would fall into the single digits until very recently.”
Rising inflationary risks from the prevailing high fuel prices have seen investors push for a greater return to invest in government securities as they seek to offset the reduced real return from the falling purchasing power of cash.
The return on the 364-day or one-year Treasury bill has, for instance, rebounded to nearly nine percent, standing at 8.9932 percent as of last week from a low of 8.27 percent at the start of April.
Returns from money market funds are expected to rise as interest rates on T-bills continue to mark a recovery.
Fixed-income funds, whose return is derived mostly from the longer-dated Treasury bonds, are, however, expected to see falling returns as the market value of the securities falls in a rising interest rate environment.
The value of government bonds usually falls as interest rates rise to raise their yields in line with returns on new auctions, resulting in paper losses for investors.
“We expect negative returns to be more pronounced for fixed-income funds as interest rates rise again,” said Mr Mburu.
MMFs, which are usually invested in short-term instruments, remain the most popular sub-category of unit trusts or collective investment schemes with assets standing at Sh442.1 billion as at the end of March 2026, giving them a 51.9 percent share of the market.
The combination of special funds and fixed-income funds has, however, been creeping up on the MMF’s dominance and held market shares of 23.9 percent and 23.4 percent, respectively, in the same period.
Total assets held in combined unit trusts meanwhile climbed to Sh851.7 billion, rising 13 percent from Sh756.3 billion in December 2025 and underlining the continued expansion of the industry.
The growth in overall assets was attributed to re-investments in the funds by mostly retail investors and the registration of additional funds by the Capital Markets Authority.