Ksh MMF vs. USD MMF – Which Money Market Fund Should You Choose? 

Money market funds have become the go-to investment option for Kenyan investors seeking low-risk investments. Shilling MMFs often offer higher yields than traditional bank accounts, making them attractive to investors.

So far, most local investors have focused on Shilling MMFs, but as Kenya’s investment landscape evolves, more options are emerging. One such alternative is the US dollar (USD) MMF, which presents a compelling choice for those looking to diversify or hedge against currency fluctuations.

But how do you decide between a Shilling MMF and a USD MMF? Let’s break it down.

Understanding the Key Differences Between Ksh MMFs and USD MMFs

The main difference between Shilling MMFs and USD MMFs is their investment strategies. Unlike Ksh MMFs, USD MMFs invest in dollar-denominated securities. This could be fixed deposits, commercial papers, corporate bonds, Eurobonds, among others.

Shilling MMFs typically offer higher interest rates ( 5-13% as of March 2025)compared to the 4-6% offered by USD MMFs. This difference in returns can be attributed to their different investment strategies. While Shilling MMFs focus on maximising returns, USD MMFs prioritise capital preservation and hedging against local currency risk.

In the Kenyan market, Shilling MMFs also tend to be more liquid, thanks to their seamless integration with mobile money platforms.

Also read: Highest Paying MMFs in Kenya, Based on February 2025 Returns

Why Invest in USD MMFs?

Despite the low returns, investing in USD money market funds offers several benefits that cannot be ignored.

• Currency Risk Management: If you earn in dollars, USD MMFs allow you to maintain these earnings without having to convert them into the local currency. This protects your investments from potential depreciation of the Kenyan shilling.

• Hedging your portfolio: If your investments are heavily exposed to Kenyan shilling assets, investing in Dollar backed assets helps spread risk across different currencies.

It allows you to diversify your portfolio by holding a portion of it in a stable, low risk asset class.

• Reducing outflow of foreign currency: Investing in Dollar MMFs helps reduce the outflow of foreign currency by encouraging the adoption of local investments in USD-denominated assets. 

This helps stabilize our economy by keeping USD reserves within our local financial institutions.

Who Should Invest in USD MMFs?

USD MMFs are generally more favorable to certain types of investors. However, this does not mean that other investors cannot take advantage of this investment opportunity.

• USD earners : If you earn in dollars, investing in USD MMFs allows you to manage and grow your money. This helps preserve your earnings without exposing you to currency fluctuation risks.
• Businesses with International Operations: If your business has USD-denominated expenses and obligations, having a dollar MMF allows you to hedge against foreign exchange risks. Additionally, these funds allow you to manage your short-term capital in a way that aligns with your operational currency needs. 
• Investors looking to preserve their capital and short-term investment: USD MMFs are suitable for investors who want to prioritize security over high returns. Ideally, they aim to mitigate FX risks if they predict a potential decline in the value of the Kenyan shilling against the dollar
• Investors looking to diversify their portfolio: If your investments are mainly in Kenyan Shillings backed assets, investing in the dollar could help diversify your portfolio without the need for high-risk investments.

Also Read:All You Need to Know About Sanlam Money Market Fund

When to Choose Shilling MMFs Over USD MMFs

Understanding when to invest in Ksh MMFs is also important. It all depends on the goal of investing.

• You earn primarily in Ksh – If you earn primarily in Kenyan shilling, investing in dollar denominated assets might prove challenging due to the conversion rates when depositing and withdrawing the funds. Therefore investing in KSH MMFs would be more suitable since it does not require any currency conversions.
• You want higher returns – If your aim is to get a higher return on your investment, Ksh MMFs typically offer better yields than Dollar MMFs. Therefore, Ksh MMFs would better meet this investment goal.
• You value ease of accessibility and liquidity – Kenyan MMFs are highly liquid since they easily integrate with mobile money platforms. This gives you faster access to funds for local expenses.

• You are comfortable with currency risks – If you mainly trade in Ksh and have no significant USD obligations in the near future, investing in Ksh MMFs would be more ideal due to the high returns and more liquidity.

How to Evaluate USD MMFs

Ever heard the saying, compare apples to apples? When evaluating USD MMFs, it's essential to compare their returns against other USD-based assets rather than directly against Ksh MMFs.

Additionally, factor in currency risk by considering how exchange rate fluctuations may impact your returns. Assessing USD MMF returns against the prevailing inflation rate and interest rates in the currency's country provides a more accurate picture of their performance.

Why Rates on USD MMFs are Lower than Ksh MMFs

The returns on USD MMFs are influenced by global economic conditions and US monetary policy. These factors directly affect the prevailing USD interest rates and, in turn, the performance of USD-denominated assets.

Additionally, the US economy generally experiences lower inflation and more stable monetary policies compared to Kenya. This results in lower interest rates and, consequently, lower returns on USD-denominated investments. In contrast, Kenya, as an emerging market, often has higher inflation and interest rates, leading to higher yields on Shilling-denominated investments.

Also Read: NABO Africa Money Market Fund (MMF)

Wrapping Up

Ultimately, the choice between Shilling MMFs and USD MMFs depends on your investment goals. Shilling MMFs are ideal for maximising returns while maintaining liquidity, while USD MMFs focus on capital preservation and currency risk management.