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Home Investments

Challenges and drawbacks of exit strategies in key investment avenues

Faith Ndunda by Faith Ndunda
December 17, 2024
in Investments
Reading Time: 2 mins read

Most Kenyans looking to invest often choose SACCOs, education policies, bonds and land. While these investment avenues offer great returns, setting up an exit strategy can present challenges. Investors should always consider the risks and favorability of the terms of the exit strategies in their investments.

 Savings and Credit Cooperative Societies (SACCOs) are popular among Kenyans because they provide affordable loans. Due to liquidity constraints, there are delayed payouts for shares when exiting SACCOs and members may be required to give a 60-day notice. When leaving the SACCOs, one has to find a willing buyer for their shares. For SACCO Back Offices Services Activity (BOSA) one can only access their funds by taking a loan or withdrawing from the SACCO. In the year ending June 2023, the Competition Authority of Kenya received at least eight cases of complaints by members who failed to receive a refund on their deposits despite the 60-day notice.

Education Policies offer long-term savings plans for education for your child. Upon maturity the full sum assured is paid and is tax free. For education policies, one can’t withdraw their savings unless the policy has accrued some surrender value. Insurers often apply surrender charges for those exiting before maturity. Upon exiting the policy, most insurers surrender value is lower than the total insurance premiums paid.

Bonds are considered stable low-risk investments with high returns. However, there are challenges in their exit strategies. Exiting bond investments before maturity can lead to losses especially when the interest rates rise leading to a fall in bond prices. Selling bonds before maturity may incur mark up charges which may lead to losses in the investment. In a case where there is a lack of ready market or buyer there is a risk of selling the bond at a discount and one may make a loss.

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Land is one of the most sought-after physical assets as an income generating investment due to its potential to appreciate. The main exit strategy in land as an investment is selling. Land is a highly illiquid asset and selling it could take months or years. Unlike most beliefs, the value of land could reduce due to reduced demand, political instability and unfavorable economic conditions thus an investor could make a loss. Land sales are subject to capital gains tax of 15% in Kenya. While waiting for an opportune time to exit, investors incur costs such as property taxes, security, and maintenance.

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Faith Ndunda

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