Advantages And Disadvantages Of Investment Trusts: A Kenyan Overview


Looking to invest in Kenya? Learn about the advantages and disadvantages of investment trusts in our comprehensive overview. Make an informed decision for your financial future.

Imagine you're a savvy investor in Kenya, looking to expand your portfolio and diversify your holdings. You've heard whispers about investment trusts and their potential benefits, but you're not quite sure if they're the right fit for you. In this article, we'll give you a brief rundown of the advantages and disadvantages of investment trusts in Kenya. Whether you're a seasoned investor or just starting out, this overview will help you weigh the pros and cons of this unique investment option and make an informed decision about your financial future.

What are Investment Trusts?

Investment trusts are financial vehicles that pool money from individual investors to invest in a diversified portfolio of assets. They are collective investment schemes structured as public limited companies or similar entities. Investment trusts are created with the goal of generating returns for the investors by investing in a wide range of assets such as stocks, bonds, real estate, and commodities.

Definition of Investment Trusts

Investment trusts are closed-end funds that issue a fixed number of shares to investors. These shares are traded on exchanges, just like stocks, allowing investors to buy and sell them at market prices. Unlike open-end mutual funds, investment trusts have a fixed capital structure and are not subject to the fluctuations in demand from investors. This means that the value of investment trust shares is determined by supply and demand in the market, rather than the net asset value (NAV) of the underlying assets.

Characteristics of Investment Trusts

Investment trusts have several characteristics that set them apart from other investment vehicles. Firstly, they are managed by professional fund managers who make investment decisions on behalf of the trust. Secondly, investment trusts offer investors access to a wide range of asset classes, allowing for greater diversification. Additionally, investment trusts have the advantage of liquidity, as their shares are traded on exchanges. They also tend to have lower costs compared to other investment options, which can be attractive to investors.

Advantages of Investment Trusts

Investment trusts offer a range of advantages that make them an attractive option for investors in Kenya.

Diversification of Investments

One of the key advantages of investment trusts is their ability to provide diversification. By pooling money from multiple investors, investment trusts can invest in a wide range of assets, spreading the risk across different sectors and geographies. This diversification helps to reduce the impact of any one investment performing poorly, thereby minimizing the potential losses.

Professional Management

Investment trusts are managed by experienced fund managers who have expertise in the financial markets. These professionals conduct thorough research and analysis to identify promising investment opportunities and make informed decisions. This professional management can be particularly beneficial for individual investors who may not have the time or knowledge to research and select investments on their own.

Access to Different Asset Classes

Investment trusts provide investors with access to a variety of asset classes, including stocks, bonds, real estate, and commodities. This diversification across different asset classes helps to further spread the risk and potentially enhance returns. By investing in a mix of assets, investment trusts can capitalize on the strengths of different sectors and benefit from the performance of various economic conditions.


Investment trusts offer investors the advantage of liquidity. Since their shares are traded on exchanges, investors can easily buy and sell them at market prices. This liquidity provides investors with the flexibility to enter and exit their investments as needed, making investment trusts more accessible compared to other illiquid investments such as real estate or private equity.

Lower Costs

Investment trusts tend to have lower costs compared to other investment options. Since investment trusts are closed-end funds, they have a fixed number of shares and do not experience frequent inflows and outflows of investor capital. This allows investment trusts to operate with a more stable cost structure, resulting in lower expenses for investors. Additionally, investment trusts can benefit from economies of scale by pooling assets from multiple investors, which can lead to further cost savings.

Advantages And Disadvantages Of Investment Trusts: A Kenyan Overview

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Disadvantages of Investment Trusts

While investment trusts offer numerous advantages, they also come with certain disadvantages that investors should be aware of.

Market Volatility

Investment trusts, like any other investment vehicle, are exposed to market volatility. The value of the trust's shares can fluctuate based on changes in the prices of the underlying assets. During periods of market turbulence, investment trusts may experience significant price swings, and investors may incur losses if they need to sell their shares during a downturn. It is important for investors to have a long-term investment horizon and be prepared for potential fluctuations in value.

Possibility of Losses

Investing in investment trusts carries the risk of losing money. While investment trusts aim to generate returns for investors, there is no guarantee of positive performance. The value of the trust's shares can decline if the underlying assets perform poorly or if there is a downturn in the overall market. Investors should carefully assess their risk tolerance and be prepared for the possibility of losses when investing in investment trusts.

Lack of Control

Investors in investment trusts have limited control over the investment decisions made by the fund manager. The fund manager has the authority to buy and sell assets on behalf of the trust, and investors have no say in these decisions. This lack of control can be a disadvantage for investors who prefer to have a more active role in managing their investments.

Limited Transparency

Investment trusts may have limited transparency compared to other investment options. While investment trusts are required to provide regular financial reports and disclosures to investors, the level of detail and frequency of reporting may vary. Investors may not have access to real-time information about the trust's portfolio holdings, which can make it challenging to closely monitor the performance and composition of the investment trust.

Management Fees

Investment trusts charge management fees to cover the costs of fund management and administration. These fees are deducted from the trust's assets and can have an impact on investors' returns. It is important for investors to consider the management fees when evaluating the potential returns of an investment trust. High management fees can erode the overall returns, especially in periods of lower performance.

Regulatory Environment for Investment Trusts in Kenya

Investment trusts in Kenya are regulated by various regulatory bodies to ensure investor protection and maintain the integrity of the financial markets.

Regulatory Bodies

The Capital Markets Authority (CMA) is the primary regulatory body responsible for overseeing investment trusts in Kenya. The CMA regulates and supervises the operations of investment trusts to ensure compliance with the laws and regulations governing collective investment schemes. The CMA establishes guidelines and standards for investment trusts and monitors their activities to safeguard the interests of investors.

Investment Guidelines and Regulations

The CMA has established guidelines and regulations that investment trusts must adhere to. These guidelines cover various aspects such as investment restrictions, disclosure requirements, reporting standards, and governance practices. Investment trusts are required to provide detailed information about their investment strategies, portfolio holdings, and financial performance to investors on a regular basis. These guidelines and regulations aim to promote transparency, accountability, and investor confidence in the investment trust industry.

Advantages And Disadvantages Of Investment Trusts: A Kenyan Overview

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Performance of Investment Trusts in Kenya

To assess the performance of investment trusts in Kenya, it is important to analyze their past performance and evaluate the risk and returns associated with these investment vehicles.

Past Performance

Investment trusts in Kenya have demonstrated different performance levels over time. Historical data on the performance of investment trusts can provide insights into their ability to generate returns and manage risk. Investors should carefully review the past performance of investment trusts and consider factors such as the fund manager's track record, the consistency of returns, and the risk management strategies employed.

Risk and Returns Analysis

Investment trusts, like any investment vehicle, carry inherent risks. Investors should assess the risk and return characteristics of investment trusts to determine their suitability for their investment objectives. This analysis involves evaluating factors such as the volatility of returns, the correlation with other asset classes, and the potential for capital appreciation or income generation. Furthermore, investors should consider their risk tolerance and financial goals when assessing the performance of investment trusts.

Kenyan Investor's Perspective on Investment Trusts

Kenyan investors have different investment objectives and strategies when it comes to investing in investment trusts.

Investment Objectives and Strategies

Investors in Kenya may have various investment objectives, such as capital appreciation, income generation, or preservation of capital. Their investment strategies may vary depending on factors such as their risk tolerance, time horizon, and financial goals. Some investors may prefer investment trusts that focus on growth-oriented assets, while others may opt for income-generating investment trusts. It is essential for investors to align their investment objectives and strategies with the characteristics and objectives of the investment trusts they choose to invest in.

Popular Investment Trusts in Kenya

There are several investment trusts that are popular among Kenyan investors. These investment trusts may have a track record of delivering consistent returns, have a strong fund management team, or focus on specific asset classes that appeal to local investors. Popular investment trusts in Kenya may include those specializing in equities, fixed income, real estate, or a combination of these asset classes. Investors should conduct thorough research and consider the investment trust's performance, investment strategy, and risk profile before making investment decisions.

Advantages And Disadvantages Of Investment Trusts: A Kenyan Overview

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Comparison with Other Investment Vehicles

Investment trusts can be compared with other investment vehicles to evaluate their advantages and disadvantages.

Investment Trusts vs. Mutual Funds

Investment trusts and mutual funds are both collective investment vehicles that pool money from multiple investors. However, there are some key differences between the two. Investment trusts have a fixed capital structure and trade on exchanges, while mutual funds have a variable capital structure and provide daily liquidity at the net asset value (NAV) price. Additionally, investment trusts tend to have lower costs and greater flexibility in their investment strategies compared to mutual funds. Investors may choose between investment trusts and mutual funds based on their specific investment needs and preferences.

Investment Trusts vs. Stocks

Investment trusts and individual stocks represent different approaches to investing. Investment trusts provide diversification by investing in a portfolio of assets, while stocks offer the potential for higher returns but with greater risk. Investment trusts are managed by professional fund managers, while individual stock investments require individual research and decision-making. Investors who prefer a more diversified approach and professional management may opt for investment trusts, while those seeking greater control and potential for higher returns may choose to invest in individual stocks.

Tips for Investing in Kenyan Investment Trusts

Investors in Kenyan investment trusts can follow a few tips to make informed investment decisions.

Do thorough research

Before investing in any investment trust, it is essential to conduct thorough research. Investors should analyze the investment trust's historical performance, investment strategy, management team, and any potential risks. Gathering information from reliable sources will help investors make well-informed investment decisions.

Consider your risk tolerance

Investors should carefully assess their risk tolerance when investing in investment trusts. Investment trusts can be subject to market fluctuations and may carry varying levels of risk. Investors should select investment trusts that align with their risk tolerance and long-term investment goals.

Diversify your investments

Diversification is key to managing risk in any investment portfolio. Investors should consider diversifying their investments across different investment trusts and asset classes. This diversification helps to spread the risk and potentially enhance returns.

Monitor the performance

Investors should regularly monitor the performance of their investment trusts. By reviewing the performance and any changes in the investment strategy or fund manager, investors can make informed decisions on whether to continue holding the investment trust or consider alternatives.

Consult a financial advisor

Investors may benefit from consulting a financial advisor before investing in Kenyan investment trusts. A financial advisor can provide guidance based on an investor's financial goals, risk tolerance, and investment horizon. They can help investors select suitable investment trusts and create a well-diversified investment portfolio that aligns with their objectives.


Investment trusts offer distinct advantages and disadvantages for investors in Kenya. They provide diversification, professional management, access to different asset classes, liquidity, and lower costs. However, investment trusts also come with risks, such as market volatility, possibility of losses, lack of control, limited transparency, and management fees. Evaluating the performance of investment trusts, understanding the regulatory environment, considering individual investment objectives, and comparing investment vehicles are crucial for making informed investment decisions. By following the tips for investing in Kenyan investment trusts and consulting a financial advisor, investors can navigate the investment trust landscape and potentially achieve their financial goals.

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