Understanding Asset Classes and Investment Risk (Part 2).
• Collective Investment Scheme: Collective Investment Scheme (CIS) is an investment type where two or more investors pool funds to invest.
A collective investment scheme is managed by a professional portfolio manager who is guided by investment policy statement of the fund.
Mutual funds in Ghana are designated equities, fixed income or balanced mutual fund based on the type of asset the mutual fund invest. Before investing in a mutual fund, read the fund particulars and investigate how the portfolio manager is complying with the fund particulars. Redemption in mutual funds takes between 3-5 business days. Mutual funds are generally riskier than 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 represent the obligations of the issuer to bond holders, ability of the issuer to pay interest and principal as they fall due should be a prime consideration for investing in corporate bonds. Corporate bonds are considered riskier than collective investment schemes.
•Stocks: A stock represents part ownership of a company. Stocks allow investors to share in the company’s success through increase in share prices and dividends. The prices of shares move up and down based on performance and other information about the company and the economy. In Ghana, shares of public companies are traded on the Ghana Stock Exchange. Shares are considered risker than corporate bonds.
•Alternative Investments: The universe of alternative investments include real estate, private equity funds and commodities. Alternative investments are illiquid and are long term investments in nature. Alternative investment is considered riskier than stocks on the risk ladder.
Before participating in any investment, it is important to have knowledge of the asset class and understand the risk associated with that investment.
One way to minimize risk is diversification. Start by investmenting in the asset class you understand and add to it with time. Avoid investments you do not understand.
This weekly report is the copyright of NIMED Capital Ltd. (NIMED), an investment banking company licensed and regulated by the Securities and Exchange Commission (S.E.C.) of Ghana as Investment Advisers as well as the National Pensions Regulatory Authority (N.P.R.A.) as an approved Pension Fund Manager. Information and opinions herein have been compiled or arrived at based on information obtained from sources considered reliable; we therefore do not hold ourselves responsible for its completeness or accuracy. All statements of opinion, projections, forecasts, or those relating to expectations regarding future events or performance of investments represent NIMED’s own assessment and interpretation of information currently available to NIMED which are subject to change.