Collective Investment Scheme Deed (Kenya)

A Collective Investment Scheme Deed in Kenya transfers an interest in property between the named parties and records the terms of that transfer.

The Capital Markets Authority (CMA), established under the Capital Markets Act (Cap. 485A), is the primary regulatory body for collective investment schemes in Kenya. All collective investment schemes — including unit trusts, money market funds, equity funds, and real estate investment trusts (REITs) — must be licensed by the CMA before offering units to the public. Regulation 3 of the Capital Markets (Collective Investment Schemes) Regulations 2001 requires a CIS to have a fund manager licensed by the CMA, a trustee approved by the CMA, and a deed or trust deed governing the scheme. Operating a CIS without CMA licensing constitutes an offence under Section 25 of the Capital Markets Act, attracting criminal penalties.

The fund manager of a CIS in Kenya must hold a Fund Manager licence issued by the CMA under the Capital Markets (Licensing Requirements) (General) Regulations 2002. The trustee — typically a commercial bank or trust company such as Kenya Commercial Bank (KCB), Standard Chartered Bank Kenya, or a licensed trust company — holds the CIS assets on behalf of unit holders and has fiduciary duties to act in unit holders' best interests. The Trusts Act No. 11 of 2020 governs the general law of trusts in Kenya and supplements the CMA-specific regulations.

A CIS Deed in Kenya differs from a Chama Constitution (which governs an informal savings group registered under the Societies Act Cap. 108) and from a Shareholders' Agreement (which governs equity ownership in a company registered under the Companies Act No. 17 of 2015). A CIS operates through units rather than shares, is open to the general public (in the case of a public CIS), and is subject to the full CMA disclosure, reporting, and prudential regulatory framework. Private CIS structures may be available for sophisticated investors under separate CMA regulations.

The Nairobi Securities Exchange (NSE) lists certain CIS products, including Exchange Traded Funds (ETFs) and listed REITs, which are governed both by the Capital Markets Act (Cap. 485A) and the NSE Listing Rules. The Central Depository and Settlement Corporation (CDSC) provides electronic settlement infrastructure for listed CIS units. Unlisted unit trusts are sold directly by the fund manager or through authorised distribution agents registered with the CMA.

Withholding tax at 15% on investment income (dividends and distributions) from CIS funds is deducted at source and remitted to the Kenya Revenue Authority (KRA) under the Income Tax Act (Cap. 470). Capital gains on disposal of listed securities through the NSE are subject to Capital Gains Tax at 15% under the Finance Act 2023. CIS funds registered as Retirement Benefits Schemes with the Retirement Benefits Authority (RBA) may qualify for tax-exempt treatment on contributions and investment income.

A Kenya Collective Investment Scheme Deed is required whenever a licensed fund manager and an approved trustee establish a new pooled investment fund for offering to the Kenyan public or to qualified investors, in compliance with the Capital Markets Authority (CMA) licensing and registration requirements.

A CIS Deed is required when a CMA-licensed fund manager — such as an asset management company operating under a Fund Manager licence — wishes to launch a new unit trust, money market fund, bond fund, or balanced fund available to retail investors in Kenya. The CMA requires the deed to be submitted as part of the product licensing application before any marketing or sale of units to the public.

A CIS Deed is needed when a group of institutional investors — such as pension funds regulated by the Retirement Benefits Authority (RBA), insurance companies licensed by the Insurance Regulatory Authority (IRA), or banks regulated by the Central Bank of Kenya (CBK) — wish to establish a pooled private fund. Even private CIS structures require CMA notification or registration depending on the nature and size of the offering.

A CIS Deed is required when establishing a Real Estate Investment Trust (REIT) in Kenya, which is a specialist CIS structure regulated under the Capital Markets (Real Estate Investment Trusts) Regulations 2013. A REIT pools investor capital to acquire income-generating real estate assets such as commercial properties, retail centres, and warehousing facilities. The REIT deed defines the investment policy, distribution policy, and trustee's obligations in relation to real property held under the Land Registration Act No. 3 of 2012.

A CIS Deed is needed when an existing CIS is being restructured — for example, when two unit trust funds are merging, when the trustee is being replaced, or when the investment mandate is being amended. CMA approval is required for all material amendments to a registered CIS Deed under the Capital Markets (Collective Investment Schemes) Regulations 2001.

A CIS Deed is required when a foreign fund manager licensed in another jurisdiction seeks to register a foreign CIS for distribution to Kenyan investors. The CMA requires a locally registered trustee, a local deed or supplemental deed, and compliance with the Capital Markets (Cross-Listed Securities) Regulations before foreign CIS units may be offered in Kenya.

A CIS Deed is needed when the Nairobi International Financial Centre Authority (NIFCA) is issuing a Nairobi IFC Certificate to a fund manager seeking the reduced corporate income tax rates (15% for years 1 to 3; 20% for years 4 to 7) available to qualifying CIS operators under the Nairobi International Financial Centre Act No. 26 of 2019.

Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements.

A Kenya Collective Investment Scheme Deed under the Capital Markets Act (Cap. 485A) and the Capital Markets (Collective Investment Schemes) Regulations 2001 must contain the following essential provisions to qualify for CMA registration and to protect unit holders.

Parties — Fund Manager and Trustee: The full legal name, BRS Registration Number, and CMA licence number of the fund manager; and the full legal name, BRS Registration Number, and CMA approval reference of the trustee. The Capital Markets (Licensing Requirements) (General) Regulations 2002 prescribe the minimum capitalisation and fit-and-proper requirements for each party. Trustee institutions must be CMA-approved and include licensed trust companies or commercial banks.

Scheme Name, Type, and Objectives: The official name of the CIS, its type (money market fund, equity fund, bond fund, balanced fund, or REIT), and its investment objectives and policy. The investment policy must specify the asset classes in which the fund may invest, concentration limits (maximum percentage in any single issuer), and any geographical restrictions. The CMA reviews the investment policy for consistency with the Capital Markets (Collective Investment Schemes) Regulations 2001.

Unit Structure and Pricing: How units are created, priced, and redeemed. The Net Asset Value (NAV) calculation methodology, the frequency of NAV calculation (typically daily for money market funds, weekly for equity funds), and the dealing price at which units are issued and redeemed. The Central Depository and Settlement Corporation (CDSC) may be involved in unit settlement for listed CIS products.

Fees and Charges: The fund manager's annual management fee (typically 1.5% to 2.5% of NAV for equity funds), the trustee's fee, the custodian's fee, and any initial charge on investment or redemption charge. All fees must be clearly disclosed in the deed and in the CIS prospectus filed with the CMA under Regulation 11 of the CIS Regulations.

Trustee's Duties and Powers: The trustee's fiduciary obligations — safekeeping assets, supervising the fund manager's compliance with the investment policy, maintaining unit holder records, and distributing income. The trustee must act independently of the fund manager and report any breach by the fund manager to the CMA under the Trusts Act No. 11 of 2020 and the Capital Markets Act (Cap. 485A).

Distribution Policy: Whether the CIS distributes income (dividends or interest) to unit holders or reinvests it in the fund. Distribution frequency (monthly, quarterly, or annual), the basis of calculation, and the withholding tax deduction at 15% remitted to the Kenya Revenue Authority (KRA) under the Income Tax Act (Cap. 470).

Unit Holder Rights and Meetings: Unit holders' rights to receive periodic statements, to attend general meetings where the CMA requires them, to vote on material changes to the deed, and to redeem units at the prevailing NAV. A unit holders' meeting requires notice of not less than 21 days and quorum provisions consistent with the CIS Regulations.

Amendment and Termination: The procedure for amending the deed — typically requiring CMA prior approval plus unit holder approval by a specified majority. The circumstances in which the CIS may be terminated — expiry of its authorised life, CMA revocation of the licence, or unit holder resolution — and the distribution of net assets to unit holders on termination after settling all liabilities. The forms-legal.com Collective Investment Scheme Deed template covers the CMA-required elements for licensing applications under the Capital Markets (Collective Investment Schemes) Regulations 2001.

Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements.