News Column

Collective Investment Schemes Potential Income Booster (I)

May 7, 2014

Tito Barnabas

IN a bid to encourage people to expand opportunities, a financial expert has urged the public to invest their money through the Unit Trust of Tanzania's Asset Management and Investors Services Plc (UTT- AMIS) collective investment schemes, saying their past performance has shown that these offer good returns.

The UTT - AMIS Chief Operating Officer (COO) Mr Simon Migangala says the returns are good, compared to other areas in the financial market. He adds that at UTT- AMIS, they don't just keep peoples' money, they invest it.

Mr Migangala says they charge a collective investment scheme, often called a mutual fund, which is a way for investors to pool resources and participate in capital markets by buying into a diversified, professionally managed portfolio.

He says though collective investment schemes have become available to investors for about nine years now; a lot of Tanzanians still have not seized this opportunity either because of lack of information or knowledge on investment schemes or fear of the unknown (risk, such as market risk).

"We also understand that we need to invest more in providing information to the public about investment opportunities offered by the collective investment schemes and the products we offer," he says.

The UTT AMIS boss has noted that collective investment industries are in their advanced stages of development in countries like South Africa and Mauritius, the latter being an international financial centre.

Collective investment schemes are also available to investors in other countries such as Botswana, Egypt, Ghana, Kenya, Morocco, Nigeria, Tunisia, Uganda, Zambia and Zimbabwe.

In developed countries like USA, a large percentage of households keep/ save/invest their money through collective investment schemes/ mutual funds; over trillion USD are in this industry.

UTT- AMIS fund size is slightly over Sh. 166 Billion. To clear doubt to potential investors, Mr Migangala says that several structures have been put in place to safe guard investors from different types of risks. However, these structures all share common characteristics, namely:

Diversification - schemes reduce risks by investing in a range of financial instruments, with a minimum required level of diversification being established in funds constitutive documents or regulations.

Mr Migangala names another structure as Professional management - money raised by schemes is invested by a management company that specialises in investment analysis and portfolio management; "Transparency is another structure.

Investors can monitor returns and receive regular reports on the progress of their investment," he says.

He names ease of administration as another structure, saying the company that manages the schemes carries out all administrative work; Market valuation - the shares or units are valued at current market values at stated intervals and published so investors can regularly monitor the value of their investment, he notes.

He says investors may exit from a fund in one of two ways: if the fund has a fixed number of shares or units in issue (closed-end) and listed on a stock exchange, investors can sell their units or shares through the Exchange, or, if the fund has an unlimited number of shares or units (open-ended).

"Investors can ask the management company to redeem their units in the fund. Such funds are redeemed at regular intervals, often on a daily basis. The latter has been the normal practice at UTT- AMIS i.e. investors can buy and sell units back to UTT AMIS and get their money back.

Mr Migangala also notes that collective investment schemes offered to the general public and the firms that manage them are licenced and regulated by capital markets regulatory authorities.

For the case of our country the Capital Market and Securities Authority (CMSA) is the regulator. They licence fund managers and approve set up of collective investment schemes to ensure that investors' interests are protected, adding:

"Investment in collective investment schemes is voluntary and requires a sufficient number of investors to support them. In addition, because of the requirements for diversification and the need for liquidity to accommodate regular inflows and outflows of money, collective investment schemes need relatively developed stock, bond and money markets to provide an adequate range of investable securities".

The Tanzanian capital market is improving and therefore offers good opportunities for collective investment schemes and investors, he notes. Mr Migangala says those who have invested in UTTAMIS schemes for medium to long term might have noted the benefits.

He says the UTT-AMIS has five schemes, including Umoja Fund, Wekeza Maisha, Jikimu Fund, Watoto Fund and Liquid Fund. Each scheme has different features compared to the others.

For instance, Umoja Fund is a growth fund and the largest one while Jikimu is a regular income fund that distributes income quarterly or annually depending on the choice of the investor.

Individual and corporate Tanzanians can invest in any of the schemes. He notes Debt instruments are used by either governments or companies to raise funds for various financing needs.

They are categorized into short term and long term. Short term securities are mostly treasury bills while the common long term instruments in our market are treasury and corporate bonds.

He says they can be bought through the primary or secondary market. UTTAMIS invests in government securities mostly treasury and corporate bonds that are considered low risk.

Investment in debt securities is a contract for a specific duration whereby interest is paid at specified periods as stated in the terms and conditions of the investment provided in the information memorandum.

The principal sum invested, is therefore repaid at the expiration of the contract period with interest paid either semi-annually or annually. The interest stated in the trust deed may be either fixed or flexible.

The tenure of this category ranges from 2 to 15 years in Tanzania, 25 years in Kenya, 10 years in Uganda and 5 years in Rwanda. Maturity time may be longer or shorter in other markets he notes Mr Migangala reveals that Equities (also called Common Stock) is issued by companies only and can also be obtained either in the primary market or the secondary market.

Investment in this form of business translates to ownership of the business as the contract stands in perpetuity unless sold to another investor in the secondary market. He notes the investor therefore possesses certain rights and privileges (such as to vote and hold position) in the company.

Whereas the investor in debts may be entitled to interest which must be paid, the equity holder receives dividends which may or may not be declared. The risk factor in this instrument is high and thus yields a higher return (when successful).

Holders of this instrument however rank bottom on the scale of preference in the event of liquidation of a company as they are considered owners of the company, he says. (Continues on Thursday)

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Source: AllAfrica

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