If It Earns, Isn’t It Investing? A Closer Look at MMFs

Photo by Andre Taissin on Unsplash

A passing comment can sometimes linger longer than expected. Recently, someone remarked that putting money into a Money Market Fund (MMF) isn’t “real investing.” It sounded casual, even dismissive, but it raises a question worth examining. If money is placed somewhere and earns a return without active effort, on what basis is it excluded from the definition of investment?

At its simplest, investing means allocating money with the expectation of generating income or profit. By that standard, MMFs qualify. They are not speculative, dramatic or headline-grabbing, but they do generate returns. Quietly, consistently, and with far less volatility than more celebrated financial instruments.

The skepticism surrounding MMFs reveals less about the instrument itself and more about how investing is commonly understood. In many circles, investing has become closely associated with risk: equities that rise and fall sharply, property that promises long-term appreciation, or business ventures that may either scale rapidly or fail altogether. Against this backdrop, MMFs appear almost too stable to be taken seriously. They lack the appeal of rapid growth and the narratives of outsized gains. Yet stability, in financial terms, is not a weakness but a deliberate design.

What is often overlooked is what happens beneath the surface. Money placed in MMFs does not sit idle. It is pooled and deployed into low-risk, short-term financial instruments, mainly government securities such as Treasury Bills, alongside fixed deposits and high-quality corporate debt. In Kenya, this takes place within a framework shaped by the Central Bank of Kenya and regulated by the Capital Markets Authority. The objective is clear: preserve capital while generating modest, dependable returns.

Those returns, however, are not fixed forever. Over the past year, many investors have noticed a decline. In 2024, some MMFs offered yields in the range of 12 to 13 percent. More recently, rates have softened, with platforms such as Ziidi showing figures closer to 6 to 8 percent. That shift has raised concern and, in some cases, renewed doubts about the usefulness of these funds.

The explanation lies less in the funds themselves and more in the wider economic environment. Interest rates respond to inflation, government borrowing needs, and monetary policy decisions. When inflation rises or governments need to attract lenders, yields on Treasury Bills and bonds tend to increase. MMFs, which are heavily invested in these instruments, benefit in turn. When conditions stabilise and rates move downward, MMF returns follow. The decline is therefore not unusual. It is a reflection of changing macroeconomic conditions.

This is where perspective becomes important. The real question is not whether MMFs are underperforming, but whether expectations were shaped by a temporary peak period. The high returns seen in 2024 were, in many respects, linked to specific economic pressures. Current rates are closer to what these funds are structurally designed to deliver.

Seen in this light, the claim that MMFs are not “real investing” begins to lose its footing. They are not designed to compete with high-growth assets, nor are they meant to generate exponential wealth. Their role is more measured. They keep capital productive without exposing it to significant risk, provide liquidity, and offer investors a practical entry point into the wider discipline of investing.

Perhaps the more useful question is not whether MMFs count as investing, but what role they play. In any sound financial strategy, different instruments serve different purposes. There is room for high-risk, high-return opportunities, just as there is room for capital preservation and stability. Dismissing one in favour of the other overlooks the balance required to build financial resilience.

In practical terms, the distinction between saving and investing is often overstated. A traditional bank account, while secure, usually offers minimal returns. Over time, inflation erodes its value and weakens purchasing power. An MMF, by contrast, introduces the principle of growth, even if modest. It allows idle funds to participate in the financial system rather than remain dormant.

There is also a psychological dimension to consider. The act of placing money in an instrument that generates returns, however small, reinforces a mindset shift. It moves a person from passive holding to intentional allocation. And in many cases, that shift is the first meaningful step toward long-term financial planning.

None of this is to suggest that MMFs are a complete solution. They are not. They will not deliver the kind of returns that significantly alter one’s financial position in the short term. But that is not their purpose. Their value lies in consistency, accessibility, and the discipline they encourage.

What is more striking is how quickly they are dismissed. In a financial culture drawn to speed, scale, and visible wins, instruments that do not promise immediate transformation are often overlooked. Yet in many developed markets, similar low-risk funds form a core layer of personal finance strategy. They are not glamorous, but they are trusted.

In the end, the debate over whether MMFs qualify as “real investing” may be less important. What matters is whether they serve a useful function, and by most practical measures, they do. They may not be the most visible part of an investment portfolio, but they are often among the most dependable.

And in a financial landscape shaped by constant uncertainty, dependability has value of its own.