Investments In Ghana- Part 3

3 min read

MUTUAL FUND AND UNIT TRUST

A mutual fund is a kind of investment that uses money from a pool of investors to invest in securities such as fixed deposits, equity, bills, bonds or other types of investment. A fund manager decides how to invest the money, and for this he is paid a fee, which comes from the money in the fund. One great thing about these investments is, it doesn’t matter your contribution, everyone in the fund enjoys the same return percentage-wise. Obviously,the money returns will be different if you have 20k in the fund as compared to someone with 5k but in percentage terms both will earn the same rate.

OTHER CONSIDERATIONS

  • Flexibility:

Mutual funds and unit trust usually offers the opportunity to do regular top ups and redemptions sometimes at no extra charges. It is therefore good for people who want to set a monthly standing order on their account as new deposits adds up to your existing investments.

  • Diversification and Stability of returns:

Their ability to invest in multiple asset classes usually brings about a more stable return as under performance in some asset classes may be cushioned my great performances in others thus reducing the overall volatility of the fund.

  • Guaranteed Returns:

Let me quote the Director-General of the Securities and Exchange Commission (SEC), Rev. Daniel Ogbarmey Tetteh. “It’s important for investors to bear in mind that licensed fund managers are NOT supposed to sell guaranteed products or products that promise a specified return over a specified period. The investor public is encouraged to alert the Commission if they should encounter any licensed fund manager flouting this directive”. Self explanatory right?

Some institutions which offer these unit trusts and mutual funds in Ghana include DATABANK, STANLIB, EDC, UMB and REPUBLIC BANK etc. Kindly refer to the link below to find out more about licensed investment firms that you can invest with.

SEC.GOV.GH/LICENSES

TYPES OF UNIT TRUST/MUTUAL FUNDS

There are various forms types of unit trust/mutual funds.

  • MONEY MARKET UNIT TRUST

Money market funds invest in liquid, usually low risk money market instruments which are usually short-term. That is maturities of less than 1 year e.g. tbills, cocoa papers. Examples in Ghana include STANLIB Cash Trust, EDC Money Market Unit Trust, Republic Unit Trust

  • FIXED INCOME UNIT TRUST

Fixed income funds invest mainly in fixed income securities like government and corporate bonds and some money market instruments. Usually fixed income have maturities of over 1 year. Examples include, Databank MFUND, EDC Fixed Income Fund, STANLIB Income Fund Trust.

  • BALANCED FUNDS

A balanced unit trust has a portfolio comprising of a mix of equities, fixed income securities and cash. Examples in Ghana are: Databank Balanced Fund, UMB balanced Fund, EDC Ghana Balanced Fund.

  • EQUITY UNIT TRUSTS

They are made up of shares of listed companies on the stock exchange. Examples are : Databank EPACK, Republic Equity Trust.

  • REAL ESTATE INVESTMENT TRUST ( REITS)

The fund invests mainly in real estate, land, shares and bonds. It invests in immovable property, receives income from rent. Republic Bank Real Estate Investment Trust is a collective scheme set up in Ghana in 1995 and it invests directly in the real estate industry.

WHO SHOULD INVEST IN UNIT TRUSTS

> Risk tolerant individuals - Especially for the equity and real estate unit trust. The money market and fixed income unit trusts are relatively less riskier than the equity and REITS.
> Investors who have small funds and want to build little by little.A good feature of unit trusts and mutual funds is the ability to make periodic say weekly or monthly contributions which adds up to your existing investments.
> Consider it for a diversified portfolio. Mutual funds have a specific or wide mandate. For example, the balanced fund can have both equity and fixed income and as such you get to enjoy the upsides of multiple asset classes as well as be cushioned by other asset classes should one asset class under perform.
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