Mutual Funds In Tanzania: What You Need to Know Before You Invest!

Hey there, perhaps you have heard about mutual funds and people investing in them. You might be confused and unsure if you really want to put your money into them, given your past experience with investing in fraudulent schemes like Kalynda, Mr. Kuku, QNet, and even Jatu, which was listed on the Dar es Salaam Stock Market.

Worry not, I have taken my time to research and help you understand how and why to invest or not invest in mutual funds. The general rule of thumb is to invest in what you understand, so I will help you understand mutual funds before you invest. First, you need to understand what mutual funds are and how they work.

What are mutual funds?

Mutual funds is a concept where money is combined from many investors to buy a variety of investments. These investments include stocks, bonds, real estate projects, and other financial instruments.

So it’s like a group of people who collect money, invest, get returns, and then distribute the returns among the members. However, mutual funds must be regulated by the CMSA (Capital Market Securities Authority) of the respective country.

How do I know legitimate mutual funds in Tanzania?

For a mutual fund to be legitimate in Tanzania, it should be acknowledged and regulated by the Tanzanian CMSA. The company managing the fund should be licensed by the Tanzanian CMSA, and it should issue a prospectus to the public that explains the mutual fund and how it will be managed.

Now that you know how to identify legitimate mutual funds, you might be curious about how these mutual funds work.

How do mutual funds work in Tanzania?

The first step is pooling money. Imagine a lot of people, each with a little bit of money, want to invest. Instead of each person buying individual stocks or bonds on their own, they all put their money together into one big pot. This pot of money is the mutual fund.

Now, this big pool of money needs to be managed by a fund manager. The fund manager is like a chef who decides how to use the ingredients (the pooled money) to make the best dish (a profitable investment). They research and choose which stocks, bonds, or other assets to buy and sell.

When you invest in a mutual fund, you buy units of the fund. Each unit represents a small portion of the total pool of money and the investments made with it. The value of your units goes up or down based on the performance of the investments the fund manager has chosen.

Since you have pooled your money into the big pool and someone is investing on your behalf, the big question is how do you realize profits. You realize profits when you sell your units at a price higher than when you bought them. The other way is through dividends, which are distributed profits obtained by the fund’s manager's strategic investments.

Now that you know the basics of how a mutual fund works, let’s dive into the mutual funds present in Tanzania, how they operate, their benefits, and their disadvantages. As per my research, Tanzania has eight(8) registered mutual public funds: Wekeza Maisha Fund by UTT AMIS, Umoja Fund by UTT AMIS, Watoto Fund by UTT AMIS, Jikimu Fund by UTT AMIS, Liquid Fund by UTT AMIS, Bond Fund by UTT AMIS, Faida Fund by Watumishi Housing Investments, and Timiza Fund by Zan Securities.

Wekeza Maisha Fund by UTT AMIS is the first investment cum insurance scheme in Tanzania, meaning it combines investment and insurance. Part of your money will be put into investments like stocks and bonds appreciating (growing) over time, and the other part goes to cover your insurance to protect your loved ones in case something happens to you, for instance, death or permanent disability that prevents you from earning.

In the Wekeza Maisha Fund, 99% is invested and 1% is used for life insurance. There is no limit for the part of investing; however, insurance profit is limited to 25,000,000 TZS. Anyone between the ages of 18 and 55 can invest for a period of ten(10) years.

The minimum to be invested over the period of 10 years is 1,000,000 TZS, and the individual can invest a minimum of 8,340 TZS per month. The insurance benefits present in this fund include life insurance, accident insurance, permanent disability insurance, and burial costs.

Umoja Fund by UTT AMIS is an open-ended balanced fund that invests in a diversified portfolio (like stocks and other instruments in financial markets), making this fund best suited for a medium-risk profile, meaning a person who has a moderate appetite to lose and gain profits. The minimum amount to invest is 10 units only. To withdraw cash by selling units, one will get the cash after 10 working days.

Watoto Fund by UTT AMIS is a child benefits open-ended balanced fund that seeks to generate long-term capital appreciation over time, which can be used to pay university school fees in later years or provide business capital to your child. A parent with a child below 18 years of age, or an organization investing for children as part of service to the community, can start with 10,000 TZS, with additional amounts of 5,000 TZS.

Jikimu Fund by UTT AMIS is an open-ended balanced fund that aims at growing your money and distributing income, periodically short term and long term. The money is invested in stocks and other instruments in the financial market. This fund benefits from compounding interest, meaning the initial capital you put plus the dividends (profits realized) is reinvested in the fund.

For example, if you bought 10 units at 1,000 TZS each, your initial capital would be 10,000 TZS. If in the first month you got a dividend of 200 TZS, the next month the capital invested will be 10,200 TZS and not 10,000 TZS.

Jikimu Fund has two plans. The first plan is receiving dividends, which you can receive quarterly or at the end of the year. To get quarterly profit returns, the minimum to start with is 2,000,000 TZS, and to get annual profit returns, the minimum to start to invest is 1,000,000 TZS. The second plan is raising capital; for this plan, the minimum amount is 5,000 TZS. Additionally, for dividends, the minimum is 5,000 TZS, and for raising capital, it is 15,000 TZS.

Liquid (Ukwasi) Fund by UTT AMIS is an open-ended growth scheme that seeks to provide an alternative investment opportunity to investors like SACCOS groups or private investment groups or clubs. The minimum amount to invest is 100,000 TZS, and the minimum additional investment is 10,000 TZS. This fund is easier to liquidate (turn your units into cash by selling them) as it takes 3 working days to process your bid to sell.

Bond Fund by UTT AMIS gives more room for investors to invest in various bonds (government bonds and companies present in the financial markets) and aims to distribute income monthly, semi-annually, and reinvest the income. This fund has three plans. The first plan has a minimum of 50,000 TZS for raising capital, 10,000,000 TZS for dividends every month, and 5,000,000 TZS for dividends semi-annually. For additional investment, the amount is 5,000 TZS.

Faida Fund by Watumishi House Investments is an open-ended scheme that seeks to create wealth for Tanzanians, particularly middle and low-income groups, through investments in units to obtain competitive returns through capital growth and enhance the culture of savings in financial assets. The Faida Fund is invested in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper, and inter-bank call account money. The minimum amount to start investing is 10,000 TZS, and additional investments require a minimum of 5,000 TZS. This fund is quite liquid as you can liquidate your units in 3 working days.

Timiza Fund by Zan Securities is an open-ended scheme that aims to grow capital and realize profits. It has relaxed entry requirements for both individuals and institutions. The Fund will invest in high-quality listed equities, debt securities, and liquid assets to strike a balance between returns and liquidity needs of investors in the Fund. The fund has two plans. The first plan (reinvestment option) has a minimum entry amount of 10,000 TZS, and the second plan (annual income distribution option) has a minimum entry point of 1,000,000 TZS.

Benefits of Mutual Funds

1. Alternative to fight inflation: The Tanzanian Shilling faces inflation, which means the value of the shilling is going down with respect to the United States Dollar. As per the Bank of Tanzania (the central bank), the inflation rate was at 3.1% as of April 2024. By investing in mutual fund units, you protect your cash against inflation as your units' value increases, and you receive dividends that can be reinvested in your mutual fund account.

2. Use as collateral: Most people don’t know that you can use your units in your mutual fund account as collateral. For instance, if you are an entrepreneur with a mutual fund account holding 20 million TZS worth of units at their Net Asset Value (NAV), you can go to a bank or microfinance institution and ask for a loan using your units as collateral. This means your 20 million TZS keeps growing while you have working capital to grow your business, which is an extra win. For UTT AMIS, the procedures are quite clear on how to use your units as collateral.

3. Compound interest: By now, you are quite familiar with compounding interest. If you have invested 10,000 TZS and the current month realizes a profit of 2,000 TZS, the next month your investment is no longer 10,000 TZS but 12,000 TZS.

4. Insurance benefits: As we saw with the Wekeza Maisha Fund, which invests 99% of your money and allocates 1% to insurance, with a maximum benefit of 25,000,000 TZS in case of death, permanent disability, or accidents, with a minimum requirement of 1,000,000 TZS over 10 years, where each month your minimum investment is 8,340 TZS.

Summary

At this stage, you might be interested in buying units in any of these mutual funds. I will share a separate article on how to buy mutual funds in Tanzania. However, since we are at the end, I would love to share my little personal perspective on mutual funds. Mutual funds are liquid, and I see them as a good way to protect my cash reserve against inflation while also getting insurance benefits. I also think for parents with children, it’s a good long-term investment for their children compared to fixed accounts in banks.

As an entrepreneur, it’s an opportunity to have a ready collateral that appreciates over time and gives you a chance to have working capital to grow your business fast. Plus, I think with mutual funds, as with any investment, volumes (the quantity of cash invested/units bought) matter to realize profit. It’s a safe way to invest, and its capital appreciates slowly, so it’s for those with patience. In my next article will share how to analyze, choose and purchase mutual fund units, stay tuned.

Extra vocabularies:

Open-ended scheme - a scheme that allows you to buy and sell mutual fund units at any point in time during working days.

References:

1. What are mutual funds ?

2. List of Licensed Fund Managers in Tanzania

3. UTT AMIS

4. Watumishi House Investment Project

5. Timiza Fund by Zan Securities prospectus