What's the difference between Sacco's and Collective Investment Schemes?
Before we jump into comparison, let’s begin by defining the two. A Sacco is an acronym for Savings And Credit Co-Operative. Their main agenda is to offer saving schemes and credit facilities. They operate in different ways depending on their business model and are often governed by Sacco by-laws. They’re low risk and quite simple to comprehend. Examples of Sacco’s include Mombo Sacco, Stima Sacco, Police Sacco, Sheria sacco, Mhasibu Sacco, Waumini Sacco, Kimisitu Sacco, Safaricom Sacco, Mwalimu Sacco among others.
CIS on the other hand stands for Collective Investment Schemes, are mutual funds where fund managers collect money from individuals or companies and pool the funds together for collective investment. The funds are further invested in either of two asset classes; money market instruments or equities (government or otherwise).
Money market instruments are where your principal amount is invested in exchange for periodic cash flows with interest. Upon maturity, the money is released or withdrawable amounting to the principal plus interest received. This investment can also be a low risk. Several companies that offer Collective Investment Schemes include CIC, Sanlam, Cytonn, Britam, and ICEA Lion.
Features of a Sacco vs CIS
With the understanding that both investments are low risk, let’s dig deeper to see the underlying features that bring out the difference between the two.
Saving and Credit Co-operative Societies
Sacco’s have two or three main agendas.
1. Save
You can invest in a Sacco to simply save your money. The money will be invested into authorized instruments such as stocks, shares, bills, and treasury bonds by Sacco. The aim is to gain dividends from the investment. Returns from the savings range from 5% to 10%, which is better than letting your money sit in your current account.
A good example of Saccos offering high interest on Savings is Mombo Sacco, who offer five products i.e. Flexible Savings, Fixed Savings, Personal Loans, Asset Finance, Sharia-Compliant products. For all these plans, you gain significant dividends from shares bought and interest ranging from 4% to 6%.
2. Invest
Multiple Sacco’s allow you to invest the money you saved into various projects. Whether it is land acquisition, rental development projects, or something else, your chosen Sacco can push the project for you and also offer to fund up to five times your savings.
These developmental projects are quite interesting because payback on loans used in the development is long term and negotiable. Furthermore, you could share a project with other members of the Sacco. Such investments allow you to achieve your investment goals faster and in a cheaper way than you would by simply saving the needed money for your project.
Unfortunately, this option may not be available for all credit societies
3. Borrow
The second most crucial feature of this investment is the ability to borrow money. Standard credit features can level up from three to five times your savings. What’s more, other societies only require you to save with them for a short period after which you can access loans and other credit products.
From quick emergency loans, school fees loans, development loans, lifestyle loans for your wedding, or vacation. You name it! These extended loans not only aid to boost your financial situation, but their payback is stress-free. Their lending rates are at 12% per annum, which is lower than bank rates.
Collective Investment Schemes
Mutual funds are all about investing, no borrowing of loans. They are open-ended where you invest for a short term say one year. The mutual fund requires that the money is invested in government securities like bonds and bills, commercial papers, or their fixed and call deposits. Their interests range between 4% and 10% per annum.
Depending on how the money market is, you could be credited daily, monthly, or annually after maturity. After this, the cycle of investment begins again. With MMFs, you are allowed to withdraw at a fee of approximately 1-1.5%. This then makes its operation similar to a bank.
Rates for a unit trust may be higher than that of a Sacco because it’s short term and involves the pooling of funds with investors. However, it holds more risk than Sacco because of rate fluctuations. What’s more, a money market fund can easily crumble, which is why you have to be wary of one that offers a higher rate than the market average.
Money Market Funds, however, are low-risk investments that can also be used by both low and high-income earners. You don’t need anyone in the Fund already to join as with most saccos, and they offer high returns. Other features include; no penalties for withdrawal assured interest in principal amount, higher savings, and reinvestment opportunities.
You have been educated on the different features offered by the two investment options. Now let’s highlight why you should choose a Sacco over the unit trust.
Invest in your dreams
As you save with Mombo Sacco you will be able to earn interest on all your savings while you get financing for all your projects without affecting your savings.
Benefits of a Sacco over a Unit Trust
1. More Products and Services
As you’ve read in the features above, SACCOs can offer three among many other services including saving, investing, and borrowing. Unlike the unit trust, you can’t leverage your savings to get a loan that you can use to push your projects and agendas.
Saccos give you a leeway to use your savings to secure a loan, to invest further, and to stock up on your savings. Even though the amount saved isn’t withdrawable, it can aid you with other agendas.
2. Community Supported Projects
Saccos have community and personal development projects. This is where you can acquire land, housing, and other real estate property by just being involved with your Sacco projects. Unlike unit trusts, you can make piecemeal contributions to the project and get awarded with part of the project proceeds.
Another great deal is community support by the Sacco that allows you to source guarantors as easy and fast as possible. One great community is M-Community by Mombo Sacco. It’s a fraternal savings’ system that organizes interactions amongst its members and brings members together in smaller groups that will enable interactions at a more personal level.
3. Saccos Charge Standard Interest Rates
Money mutual funds are often affected by rate fluctuations. One day they are at 11% the next they are at 9%. With saccos, their interest rates are fixed and predetermined. You’re assured of your calculated amount right from the start to the end. This way, you can predict or approximate your outcome or expected loan repayment.
4. Dividend Paying Shares
During the process of registering into a Sacco, you may be required to buy a few shares, say 20 to 100 to be fully registered into the society. These shares equally earn your dividend at the end of the year.
You may not know how much your interest is as it’s calculated after profit and tax per year, but you can be assured of returns after the companies AGM. Furthermore, that’s not the only way you can earn from Sacco. Your Sacco savings as well can earn you some interest.
Remember your savings will be used to invest in government bills and bonds which in turn earn you interest added on to your savings. This means cumulatively, you’re earning twice from dividends and shares.
5. Low-Risk Environment
Risk, uncertainty, and money are three things that shouldn’t ordinarily be used in one sentence. But with every investment, you hold a risk, therefore the best thing is to go for something less risky. One with assured returns on your investment and where your money can grow without worrying too much about losing it.
Saccos hold your savings in your account. That’s their primary duty, however, they invest your money as well to earn interest. In case of any losses, you’re still assured of your money in your account. With the unit trust, however, there are diverse risks because the main aim is to invest. Your money is invested somewhere to gain something. In case of loss, you may lose as well. This makes mmfs highly risky compared to the former choice.
6. Additional Benefits
With saccos, you are offered a variety of benefits based on the particular bosa or fosa packages. You can acquire assets, borrow loans, venture into real estate, boost your business, plus much more. This service is not open only to Sacco members, but also non-members who can buy land and acquire assets just as a member would.
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