Investing can provide an opportunity to grow wealth, generate income and meet long term financial goals. However, choosing an investment product should involve more than looking at the returns being advertised. Investors in Kenya need to consider whether a product is regulated, how it works, what risks it carries and whether it matches their financial objectives.
Check who regulates the product
The first step is establishing whether the institution and product are authorized by the relevant regulator. The Capital Markets Authority (CMA), for example, maintains lists of licensed fund managers, investment advisers, brokers and approved collective investment schemes.
Different products fall under different regulatory frameworks. Retirement schemes, for instance, are supervised by the Retirement Benefits Authority (RBA), while insurance products are overseen by the Insurance Regulatory Authority. Kenya’s financial consumer protection framework also brings together several regulators to strengthen consumer protection across the financial sector.
Understand the risk
There is no investment that is completely risk-free. Investors should establish what could cause the value of their investment or expected income to decline and how much loss they can afford to absorb. CMA guidance advises investors to understand their risk profile before selecting an investment product.
Higher potential returns can also come with greater risk. Investors should therefore be cautious of products that emphasize unusually high returns without clearly explaining the risks involved.
Look beyond the advertised return
The headline return does not necessarily represent what an investor will receive. Fees, management charges, taxes, penalties and other costs can affect the final outcome.
CMA regulations require market intermediaries to ensure clients understand the nature of an investment, its fees and charges, risks, performance factors and the consequences of exiting the investment.
Check liquidity and investment terms
Investors should know when and how they can access their money. Some products may have withdrawal restrictions, maturity periods or penalties for early exit. Understanding these conditions beforehand can prevent an investor from committing money that may be needed for emergencies.
Do your own research
Investors should read the relevant product documents, understand where their money will be invested and review available information before making a decision. CMA similarly advises investors to conduct adequate research, maintain a cash buffer and diversify rather than concentrating their money in one investment.
Ultimately, the right investment is not necessarily the one offering the highest advertised return. It is the product whose risk, cost, accessibility, structure and potential return align with the investor’s objectives and financial circumstances.
