Ghana’s investment industry is undergoing significant changes due to the Securities and Exchange Commission (SEC) enforcing new financial regulations. I have already written about these changes and their implications so I will not repeat them here. But effectively, the SEC wants fund managers to stop offering products with fixed returns and focus on selling equities and collective investment schemes such as mutual funds. In this post, I will give ten reasons why investors should embrace this opportunity to buy mutual funds.
- They are largely liquid investments. Liquidity refers to the ease of converting an investment into cash. Mutual funds are required to keep a portion of their funds in cash. This is to allow them to be able to meet redemptions by investors. This ensures that investors would be able to withdraw their funds when they need to.
2. Increased inflows expected. The investment regulations requiring the end of fixed deposits by fund managers should see an inflow of some of those funds into mutual funds, which should improve their performance.
3. No tax. Returns from mutual funds are not taxable under Ghana law.
4. Diversified portfolio. Mutual funds invest in different assets and asset classes. This reduces the risk of the whole fund failing because a failure of one of the assets will not bring down the whole fund.
5. Well regulated. Regulations ensure that mutual fund managers invest most of their funds in publicly-listed securities which checks conflict of interest.
6. Transparency. The securities that the fund invests in are included in the quarterly or annual reports of the funds.
7. Regular performance reports. The performance of the fund can be tracked through daily price quotes and percentage changes in price as well as annual reports and statements on demand.
8. Low fees. Mutual funds can charge you a small fee for deposits or withdrawals (not both) and their fees by law cannot exceed more than 2.5% of the investment.
9. Variety. There are money market mutual funds for those looking for short-term, liquid, investment into government securities and equity funds for those looking for long-term investments in stocks. No matter, your investment objective, you will get a mutual fund that matches your goals.
10. Encourages long-term thinking. Mutual funds usually offer to charge no fees on withdrawal if you leave the funds there for a minimum period of time. This encourages investors to leave their funds there for a longer period thus increasing their chance of earning higher returns.
Are you ready to invest in mutual funds? You can start by reading this guide.