How to compare a fund, a bill, a bond and a sacco on one basis

Here are four real-looking Kenyan rates:

• A money market fund at 14%
• A 91-day Treasury bill at 8.75%
• A ten-year Treasury bond at 13.2%
• A sacco dividend at 10%

Printed like that, the order looks obvious. It is also meaningless, because not one of those numbers is measuring the same thing as the one above it.

Four conventions

The fund's 14% is what it earned yesterday, multiplied up as if every day of the year looked like yesterday. Before tax.

The bill's 8.75% is the rate for its own 91 days, stated annually so it can be printed next to the other tenors. To make it a year you must assume you re-buy it four times.

The bond's 13.2% arrives in two coupons a year, each of which is taxed when it lands and can be reinvested.

The sacco's 10% is a declared rate for a year that has already finished, paid once.

Four tax rates

• Fund interest: 15%
• Treasury bills: 15%
• Treasury bonds: 15% up to nine years, 10% at ten years or more, and nothing on infrastructure bonds
• Sacco dividend on share capital: 5%

One withholding rate applied across that list would be wrong for most of it.

The order changes

Brought to one basis — what a year actually keeps after tax, with each payment taxed as it arrives and then reinvested:

The fund and the bond are nearly a point and a half apart as published and barely four-tenths apart in reality. The sacco closes almost a full point on everything above it, purely because of its 5% rate. And an infrastructure bond quoting 12% would land at 12.36% — above both the ten-year bond and, on these figures, within a quarter-point of the fund, despite quoting two points lower than it.

What the column still does not tell you

A single comparable number is necessary and not sufficient. Three things sit outside it:

When you can get the money. A money market fund pays out in a couple of days. A 91-day bill is locked until it matures, unless you sell at market. Sacco share capital generally cannot be withdrawn at all without leaving the sacco. These are not small differences and no yield figure contains them.

What it costs to get in. A Treasury bill needs KES 100,000, an ordinary bond KES 50,000, an infrastructure bond KES 100,000. A money market fund will take a few thousand. For most people this decides the question before the rates do.

How old the figure is. Rates move. A bond yield from eighteen months ago is a real rate that was really available — but not to you, and not now. Sorted by size alone, in a year when rates have fallen, the oldest figure reliably looks like the best one.

That last point is why Ipahco's comparison dates every row, and sorts current figures above stale ones rather than purely by the number. A stale rate is still the best anyone knows, so it is shown. It is just not allowed to lead the table.

The honest summary

Comparing Kenyan investment rates as published is not slightly misleading, it is arbitrary: the winner is whichever product's convention flatters it most. Converting them to one after-tax annual basis is the minimum work required before the numbers mean anything — and once you have done it, the remaining differences are usually small enough that liquidity and minimum, not yield, are what should decide.