Fixed income funds have become a popular investment option in Kenya, especially for investors looking for relatively stable returns compared to stocks or business ventures. These funds typically invest in government securities, corporate bonds, and other low-risk instruments, making them attractive for both beginners and conservative investors.

However, one question often comes up: why do some fixed income funds offer higher returns than others?

Examples of Fixed Income Funds in Kenya

Here’s a snapshot of some funds in the Kenyan market and their recent returns:

• Lofty-Corban Bond Fund – offers 17.65% net return
• Mayfair Fixed Income Fund – offers 13.63% net return
• Etica Fixed Income Fund – offers 10.98% net return
• Gulfcap Fixed Income Fund – offers 15.55% effective annual rate
• Kuza Fixed Income Fund – offers 14.44% effective annual rate
• CIC Fixed Income Fund – invests in government and corporate bonds, offering semiannual dividends
• I&M Capital USD Fixed Income Fund – offers 5.43% effective annual rate in USD
• Britam Bond Plus Fund – offers 9.63% net return
• Madison Fixed Income Fund – offers 9.61% net return
• Zimele Fixed Income Market Fund – offers 8.14% net return

While all these funds fall under the same category, their returns vary significantly—from about 8% to over 17%.

Why the Big Difference in Returns?

1. Type of Investments (Risk Level)

Not all fixed income funds invest in the same assets.

• Some focus heavily on government securities, which are safer but offer lower returns.
• Others include corporate bonds or private debt, which carry higher risk but also higher returns.

Higher returns often mean the fund is taking on slightly more risk.

2. Interest Rate Environment

Funds that locked into high-yield government bonds during periods of high interest rates (like recent years in Kenya) tend to offer better returns.
Newer funds may be investing in lower-yield instruments if rates have started stabilizing.

3. Fund Strategy and Management

Different fund managers have different strategies:

• Some actively trade bonds to maximize returns
• Others take a more conservative, long-term approach

A more aggressive strategy can boost returns—but may also increase volatility.

4. Fees and Costs

Returns are usually quoted as net returns, meaning after fees.
Funds with higher management fees may show lower net returns even if their gross performance is strong.

5. Currency Exposure

Funds like I&M Capital USD Fixed Income Fund invest in dollar-denominated assets.

• Their returns may appear lower (e.g., 5.43%)
• But they offer protection against Kenyan shilling depreciation, which can be a major advantage.

6. Size and Liquidity of the Fund

Larger funds sometimes prioritize stability and liquidity, which can slightly reduce returns.
Smaller funds may be more flexible and able to chase higher-yield opportunities.

What Should Investors Focus On?

Instead of just chasing the highest return, consider:

• Risk level – higher returns often come with higher risk
• Consistency – has the fund performed well over time?
• Liquidity – how fast can you withdraw your money?
• Investment goals – short-term parking or long-term growth?

Fixed income funds in Kenya are not created equal. While they all aim to provide stable income, their returns differ due to strategy, risk exposure, market timing, and cost structure.

The smartest move isn’t always picking the fund with the highest percentage—it’s choosing one that aligns with your financial goals and risk tolerance.