A lot has been made of the rise in the value of fixed income investments in recent months, and rightly so. If an investment of GHS500 was made in a 91 day treasury bill on 28.12.2012 at a rate of 23.12%, it would be worth GHS528.82 when it matures at the end of March 2013 (i.e. in 91 days’ time), and not GHS615.61 which is what people will expect they will get. What most people do not know of fixed term investments is that the interest rates quoted are an annual rate (regardless of the term of the bill). That is the market convention. In other words, unless an investment is made in a 1 Year Note, investors will not realize the full risk-free return "guaranteed" on a fixed term investment such as a Treasury Bill/Note. Your effective yield (which is 5.76% in this example) is in fact much lower than the 23.12%, because the investment is for a duration that is lower than a year. In truth, the effective return on investment could be lesser still if it is redeemed ahead of the 91 day maturity date.
Other investments, such as collective investment schemes (e.g. mutual funds and unit trusts) promise benefits such as risk diversification (i.e. investing in multiple investment options to achieve a lower amount of risk, which compares favorably to “placing ones eggs in one basket”) and the possibility of realizing greater returns (depending on the underlying assets that the fund invests in). If one had invested GHS500 in the Databank EPACK Investment Fund on 28.12.2012, that investment would be worth GHS608.02 as at 28.03.2013, which translates to an effective return of 21.60%. Therein lies the benefit of investing in collective investment schemes such as Databank's managed mutual funds. The return you realize on your investment over 91 days, in this case 21.60%, is what you ACTUALLY get. This compares favorably with the scenario posed earlier with the 91-day Treasury bill (and possibly, other fixed term investments such as fixed deposits). That said, we at Databank recommend a minimum holding period of about 5 years (of consistent investments in equity based mutual fund products) as that will increase the likelihood of appreciable returns on investments being realized.
*Mfund data from 2004. Annual Average Returns
Source: BOG, GSE, Databank
While past performance is not indication of the future performance of investments, it is definitely worth carefully considering the long term prospects of having your money work for you with a fund manager such as Databank that has a solid track record of outperforming other asset classes. We at Databank also take pride when rolling out our Gold Standard Customer Service to our clients and WILL NEVER, EVER, EVER, EVER discriminate against anyone regardless of the client's financial or social standing. We also go to incredible lengths to ensure that our clients have a variety of ways to top up their investment accounts as well as to check on the status of their accounts. These are some of the reasons why I invest with Databank. Which begs the question - Why do YOU invest with your current investment advisor? We appreciate your custom and look forward to providing you with relevant and superior investment advice for the rest of the year.
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Fund Manager for the Databank EPACK Investment Fund