If you’ve ever tried googling “best ways to invest,” you’ve probably seen mutual funds and unit trusts pop up everywhere. But what exactly are they, and why do so many financial experts rave about them?

Think of them as group investments where you team up with other people, pool your money, and let professionals handle the complicated stuff for you. It’s like joining a squad where everyone chips in, and someone with experience drives the investment bus.

If you’re new to investing or tired of feeling lost whenever finance conversations come up, this guide will make everything simple and clear. By the end, you’ll know what mutual funds and unit trusts are, how they work, and whether they’re worth your money.

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Step 1: Understand the basics

First things first — mutual funds and unit trusts are basically the same thing. The only difference is in the terminology: some providers call them mutual funds, while others call them unit trusts.

In both cases, here’s what happens:

  • You choose the type of mutual fund or unit trust based on your goals — maybe growth, stability, or regular income.
  • You buy units or shares in the fund.
  • Your money is pooled together with other investors’ money.
  • A professional fund manager invests your pooled money according to the strategy of the fund you selected — whether that’s stocks, bonds, money markets, or a mix.
  • You don’t have to pick individual investments — the experts do it for you.
  • If the investments grow, the value of your units or shares goes up, meaning your money grows too.

Technically, mutual funds are often structured as companies where you buy “shares,” while unit trusts are structured as trusts where you buy “units.” But in practice, they work almost exactly the same way.

Step 2: Understand the types of funds

Not all funds work the same way, though. The one you choose should match your financial goals and risk appetite. Here are the 4 main types of funds you’ll come across:

  • Equity funds (stock funds) – Invest mostly in company stocks. High risk, high potential returns.
  • Fixed-income funds (bond funds) – Invest in a mix of government and corporate bonds, and these can be short-term, medium-term, or long-term depending on the fund’s strategy. They typically carry lower risk than stocks and provide more stability through regular interest payments.
  • Balanced funds (hybrid funds) – Mix of stocks, bonds, and other assets for moderate growth and safety.
  • Money market funds (MMFs) – Super low risk, focusing on short-term investments (usually less than 1 year to maturity). Examples include treasury bills, certificates of deposit (CDs), commercial paper, and short-term government or corporate bonds. Best for parking money safely while earning better returns than a savings account.
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In Kenya and many other African countries, most unit trusts and mutual funds offer these four main options. Some fund managers might also have specialised funds, like Shariah-compliant funds, real estate funds, or index funds, but the four above are the most common starting points.

Choosing the right fund matters because it determines how much risk you’re taking and what kind of returns to expect.

Step 3: Start small and build up

One of the best things about mutual funds and unit trusts is that you don’t need a lot of money to start. In Kenya, for example, some unit trusts let you invest from as little as KES 1,000.

This makes them perfect for beginners who want to test the waters without committing a huge amount upfront. Start small, watch how the fund performs, and increase your investment as you get comfortable.

Step 4: Watch out for the costs

Here’s the part most beginners ignore — fees.

When you invest in a fund, you’re paying the fund manager to handle everything for you. That means there are costs involved, like:

  • Management fees – a percentage of your investment charged annually.
  • Entry or exit fees – some funds charge you when you buy or sell units.

Always check the fee structure before investing. High fees can eat into your returns over time. 

Step 5: Understand the risks

Mutual funds and unit trusts are safer than picking individual stocks, but they’re not risk-free.

Market conditions affect the value of your units or shares. If the stock market dips, your returns might drop too. That’s why you should:

  • Invest for the long term to ride out market ups and downs.
  • Diversify across different funds to spread your risk.
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Step 6: Make your money work smarter

Here’s where the magic happens — reinvesting your earnings.

When your fund makes profits, you can either cash them out or reinvest them to buy more units. Reinvesting allows your money to grow faster thanks to compounding. Your earnings start generating their own earnings. Over time, this can significantly boost your wealth.

Step 7: Pick the right fund for your goals

Before investing, ask yourself:

  • Do you want a steady income? Look at fixed-income funds or money market funds.
  • Are you aiming for long-term growth? Consider equity funds or balanced funds.
  • Do you want low-risk parking for your savings? A money market fund is usually best.

Choosing the right type of fund based on your goal helps you stay focused, manage risk better, and avoid impulsive investment decisions. 

Step 8: Get started

Getting started is easier than you think. Most fund managers let you open an account online. You simply:

  • Choose the type of fund that matches your goals — whether it’s growth-focused, income-based, or low-risk.
  • Fill in your details and upload the required documents, like your National ID or passport, KRA PIN/tax number, proof of address, and bank account details.
  • Make your initial deposit — usually, the minimum is quite affordable.
  • Sit back and let the professionals handle the investing. Your money starts working for you while you track your progress through online dashboards or statements.

Mutual funds and unit trusts are perfect for beginners who want to start investing without getting overwhelmed by stock charts and endless financial jargon. They give you diversification, professional management, and the flexibility to start small while growing steadily. The key is to understand your goals, pick the right fund, and stay consistent. Over time, your money starts working harder than you do, and that’s the ultimate goal.

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