INVESTING Mutual funds also known as Collective Investment Schemes allows individuals to pool resources with other investors to create a greater buying power. These funds are invested in stocks, bonds, fixed income instruments and other assets. Thus, giving an opportunity to investors who may have limited resources, to enjoy a diversified and balanced asset mix.<\/p>\n
The combined asset holdings of the mutual fund, forms what is called a portfolio. Investors who invest in mutual funds own units or shares, which represent the investor\u2019s ownership of these holdings as well as income generated by the fund. Mutual funds are essentially managed by investment professionals who are tasked to manage funds to achieve the funds objective, they are also responsible for making trading decisions on behalf of unit holders (shareholders), and hence an investor has no control over where the funds should be invested.<\/p>\n
The objectives of the fund depend on the type of fund and its investment style. Some may include achieving capital appreciation or providing regular income for investors. Investors who invest in mutual funds stand to benefit from products that take care of their long-term financial needs such as home purchase, child education financing and pension planning. Some funds also offer investors regular flow of income to take care of their short-term needs.<\/p>\n
This goes to show that in the Ghanaian economy, investment funds are long-term oriented, short-term oriented or balanced for both capital market and money markets. Investors have developed strong appetite for mutual funds lately, and the finance market can boast of over 30 licensed mutual funds of various features, risks and rewards which seek to achieve different investment objectives. Hence there are mutual funds that suit your investment style no matter the type of investor you are.<\/p>\n
However it is imperative for investors to know their financial goals and risk tolerance or seek help of a finance professional to guide in the choosing of the right mutual fund to invest in. Investors are gradually shifting to mutual funds due to the high yield it tends to offer. As of August 2014 mutual funds in Ghana had returned an average of 25 percent compared to the benchmark Ghana Stock Exchange (GSE) Composite Index which averaged 5.34 percent. It can therefore be said mutual funds performed relatively better.<\/p>\n
BENEFITS OF MUTUAL FUNDS<\/strong><\/p>\n Mutual funds\u2019 simplicity along with other features remains an ideal choice for investors with limited knowledge, time or money. Some benefits include; Diversification: This is the basic rule followed by both small and large investors. It is a strategy which can be summed up as \u201cDon\u2019t put all your eggs in one basket\u201d.<\/p>\n Pooled funds are invested across industries and sectors. In an event where an investment loses value, other assets in the portfolio can make up for it to cushion or curb the overall risk of the portfolio. This would be costly for the individual investor.<\/p>\n Professional Management:<\/strong> Purchasing mutual funds also implies purchasing a professional money manager. Rather than thoroughly researching individual stocks by yourself before arriving at an investment decision, these fund managers use their experience and research skills to select and monitor the performance of the fund. Liquidity: Liquidity speaks to the ease at which one\u2019s investment (shares) can be converted into cash.<\/p>\n Unlike the Ghana Stock Exchange which takes relatively longer time to sell shares, generally mutual funds are priced daily and are open-ended in nature, meaning investors can redeem (sell) their units and get their money back at a prevailing price faster.<\/p>\n Affordability:<\/strong> Some mutual funds set relatively low amounts for initial investments, as low as GH50 and allow for subsequent purchases. This helps to accommodate investors who do not have a lot of money to invest easily.<\/p>\n How to choose the best Mutual Funds to invest<\/strong><\/p>\n Every mutual fund has its own characteristics and risks associated with it. It is therefore necessary to shop around to find the product that best suits your lifestyle, circumstance and expectations. Investors must be aware of the magnitude of losses they are prepared to accept and how long they are willing to keep their investment. The following can serve as a guide in choosing the ideal mutual fund.<\/p>\n Risk profile and Investment Policy:<\/strong> The relationship between risk and return is inevitable, and investors seeking high returns should be prepared to take on higher risks. Investors should know their risk profile and choose funds in line with their risk appetite. This can be seen in the prospectus of the fund.<\/p>\n Recommended Time Horizon:<\/strong> The investment policy states that the minimum time recommended to keep your investment. Investors should take note of this since it\u2019s unique to the type of mutual fund purchased. It is important to keep the capital invested for at least the recommended time horizon. Otherwise one may face penalties which may eat into the returns.<\/p>\n Fees:<\/strong> Another checkpoint for prospective investors to consider before investing in mutual funds is the fees charged. They include management fees, redemption fees and other expenses which may significantly affect returns.<\/p>\n Past performance: <\/strong>A fund\u2019s track record can aid in investment decision making provided you remember that past returns are not a reliable guide for future performance. However past performance can tell you how volatile or stable a fund has been over a period of time which gives an indication of investment risk Other Risks Just like any other investment, mutual funds are not all rosy but comes along with some risks.<\/p>\n They include Market Risk which occurs as a result of broader market movements which in turn depletes the value of the fund. Currency Risk is caused by adverse movements in foreign exchange relative to the denomination of the fund. Lastly Investment Objective Risk, – which is the likelihood that your investment objectives will not be met. In selecting mutual funds it is advised to diversify by purchasing more than one product to spread or control possible risks of a fund\u2019s failure. Like the saying goes \u201cDo not test the depth of water with both feet\u201d.<\/p>\n <\/p>\n By: Bernard Boakye-Yiadom<\/p>\n Email:\u00a0bboakye9@yahoo.com<\/p>\n","protected":false},"excerpt":{"rendered":" INVESTING Mutual funds also known as Collective Investment Schemes allows individuals to pool resources with other investors to create a greater buying power. These funds are invested in stocks, bonds, fixed income instruments and other assets. Thus, giving an opportunity to investors who may have limited resources, to enjoy a diversified and balanced asset mix. […]<\/p>\n","protected":false},"author":25,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[19],"tags":[8,4],"yoast_head":"\n