THOUGHT OF THE WEEK
UNDERSTANDING ASSET CLASSES AND INVESTMENT RISK (PART 2)
? Fixed Term Deposit: Fixed term deposits are issued by commercial banks for a defined tenor and interest rate. Subscribers are only able to redeem fixed term deposits before maturity with penalty sometimes affecting part of the principal. With recent financial sector reforms, regulations baring fund management companies from issuing fixed deposit to investors is strictly being enforced by the Securities Exchange Commission. Fixed term deposit with commercial banks are considered risker than government securities.
? Collective Investment Scheme: A collective investment scheme is an investment type where more than one investor pools funds together to invest in different asset classes. A collective investment scheme is usually managed by professional portfolio managers who is guided by investment guidelines in the scheme particulars. Mutual fund in Ghana are designated equities, fixed income and balanced mutual funds each with its associated risk. Before investing in a mutual fund, read the fund particulars and find out how the portfolio manager is complying with the scheme particulars. Investors can redeem their shares in
mutual funds between 2-5 days. Mutual funds are riskier that fixed term deposit.
? Corporate bonds: Corporate bonds are debt securities issued by corporate institutions to raise capital. The market for corporate bonds in Ghana is Ghana Fixed Income Market (GFIM). Investors can buy and sell corporate bonds on GFIM. As corporate bonds represents the obligations of the issuing company to bond holders, ability of the issuing company to pay interest and principal as they fall due should be a prime consideration for investing in a corporate bond. Corporate bonds are considered riskier than collective investment scheme. ….(to be continued)