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					COLLECTIVE INVESTMENT SCHEMES (CIS),
    THEIR ROLE, PERFORMANCE AND
  CONTRIBUTION TO CAPITAL MARKET
   AND ECONOMIC DEVELOPMENT OF
                GHANA

     PRESENTED BY: MARY ASARE-YEBOAH
     Bsc. (Banking & Finance), MBA (Finance)
        WORKSHOP ON SECURITIES MARKET
       FOR SELECTED MEDIA PRACTITIONERS

THEME      -   THE ROLE OF THE SECURITIES
               (CAPITAL) MARKET IN WEALTH
               CREATION AND NATIONAL
               ECONOMIC DEVELOPMENT


ORGANISER -    SECURITIES AND EXCHANGE COMMISSION

PLACE      -   ERATA HOTEL, EAST LEGON, ACCRA

DATE       -   THURSDAY, MAY 27, 2004.


                      1
                THE LEGAL FRAMEWORK

   Companies Code, 1963 Act 179

   Securities Industry Law 1993 (PNDCL333)

   Securities Industry (Amendment) Act, 2000 Act 590

   L.I. 1695 Unit Trusts and Mutual Funds Regulations, 2001

   Regulatory Body: Securities and Exchange Commission.


                              2
          WHAT ARE COLLECTIVE INVESTMENT
                  SCHEMES (CIS)?

   CIS, as the name implies, is an avenue provided by a company (or persons so
    qualified) for the collection funds from a wide range of investors. The funds
    collected form a pool which the company invests in a portfolio of securities to
    earn returns.

   Collective schemes serve as flexible savings vehicle for individuals, corporate
    bodies, associations, clubs, etc. to accumulate funds for future needs.

   The company that collects the pool of funds from contributors is known as the
    Manager. The Manager offers professional management for the funds collected.
    The Manager is in a better position to invest the funds on behalf of contributors
    for high returns. Returns made from investment are ploughed back into the pool
    and distributed to contributors on pro-data basis, i.e. according to each
    contributor’s proportion in the Fund.

   A Collective Investment Scheme may be a Unit Trust or a Mutual Fund.

                                       3
             WHAT IS A UNIT TRUST?

   A “Unit Trust” means any arrangement whereby
    securities or any other property, other than a charge
    to secure the debentures of one body corporate, are
    vested in trustees and the beneficial interest therein
    is divided into Units, Sub-Units or other interests by
    whatsoever name called with a view to an invitation
    being made to the public to acquire such units or
    any of them.

                            4
                WHAT IS A MUTUAL FUND?
   Section 142 of PNDCL333 as amended defines a mutual fund to mean
    a public or external company incorporated solely to hold and manage
    securities or other financial assets and which has made satisfactory
    arrangements for ensuring that if:

   (a) Any invitation is made to the public to subscribe for its shares
    the price at which the shares are offered shall be based on the net
    value of its assets at the time of the offer with no addition except for
    a reasonable service charge subject to a proviso in section 37 (1) (b)
    of the Law as amended, and

   (b)   That the Body Corporate will at any time repurchase any of its
    shares from the holder at a price based on the net asset value of its
    assets at the time of repurchase without any deduction except for a
    reasonable service charge.

                                5
         WHAT THEN IS THE DIFFERENCE
         BETWEEN A UNIT TRUST AND A
               MUTUAL FUND?
   A Unit Trust is a FUND. It is not a body corporate

   It has a Manager, which may be a company as is the case for
    HFC Unit Trust, HFC Real Estates Investment Trust, and Gold
    Fund.

   It has a trustee. Its assets are vested in the trustee.

   Its operations are guided by the terms of a Trust Deed.

   Contributors to the Fund are unit holders.

                                 7
     DIFFERENCE BETWEEN A UNIT TRUST
       AND A MUTUAL FUND – CONT’D
   A Mutual Fund is a BODY CORPORATE (a company) authorized
    to invite the public to subscribe for its shares.

   It has a Board of Directors

   It has a custodian. Its assets are held in trust for the
    shareholders by the custodian.

   Its operations are governed by the company regulations

   The subscribers are shareholders

   Examples are the E-pack Investment Fund Limited and the
    Databank Money Market Fund Limited.
                              8
           DIFFERENCE BETWEEN A UNIT TRUST
             AND A MUTUAL FUND – CONT’D

   Essentially the activities of a unit trust and a mutual fund are
    similar in that they hold and manage portfolio of securities.

   It is safe to say that mutual funds are American version of
    units trusts (British)

   The salient difference lies in the fact that the unit trust
    operates under a Trust Deed whereas the mutual fund, being a
    corporate body, is governed by the Company’s regulations.

   For winding-up purposes the unit trust will follow the
    guidelines in its Trust Deed, whereas a mutual fund will wind
    up subject to the terms of the Companies Code 1963 Act 179.

                               9
                  TYPES OF INVESTMENT
                   COMPANIES/FUNDS
   Closed–end: Shares or units are held by specified number of
    investors at time of creation; no issue of new shares or units.

   Open-end: Fund stands ready to create new units and to
    redeem existing units, i.e. investors can buy or sell units as
    they wish.

   Load Fund: Sales charge required to invest in the fund and/or
    to redeem units.

   No-Load Fund: places no sales charge on the investor.


                               10
               TYPES OF INVESTMENT
            COMPANIES / FUNDS – CONT’D
   A charge may be a fixed amount or a percentage of the price. L.I
    1695 allows maximum sales charge of 7% or an exit (redemption)
    charge not exceeding 5%. The charge must be authorized by the
    constitution of the scheme.

   Where a charge is imposed, there is a spread between the offer and
    the bid price.

   Offer price: is the price the investor pays for a unit.

   Bid price: is the price the Manager buys back a unit from an investor.

   Other fees charged to the Fund include Management Fee, Trustee’s
    Fee , Custodian’s Fee and Auditor’s Fee.

                                      11
                 BUYING AND REDEEMING UNITS

   Purchase (Sale): Investors can buy units as often as they wish. The value of
    additional units purchased are added to existing units in same account the
    investor has with the Fund. For example the price of a unit is ¢100, investor has
    ¢200,000 to invest; ¢200,000/¢100 = 2,000 units

   Sell(Redemption): Similarly the investor can sell some or all of the units held in
    his account; the value of units sold are paid to the investor in return for units
    surrendered at the prevailing bid price. For example, three months later the
    value of the unit is ¢110, the investor needs ¢110,000 to pay school fees,
    ¢110,000/¢110 = 1,000 units; therefore 1,000 units will be deducted from
    2,000 units held. Investors surrenders 1,000 units to the Fund Manager and in
    return takes cash of ¢110,000 needed.

   Accumulation unit holder: is that investor who requires reinvestment of
    proceeds from dividend income.

   Income unit holder: is that investor who opts to receive dividend income in the
    form of cash.

                                         12
                  WHAT IS THE COST OF
                   INVESTING IN CIS?

   Initial Fee: Load funds impose sales charge when units are
    purchased, or

   Exit Fee: Imposed when redemptions are made

   No-load funds do not impose these charges
   NOTE: Load charges are used to pay commissions, etc. for
    sales force. Load charges are directly borne by the investor.

   Other costs, charged to the Fund (not directly to the investor)
    include Trustee’s, Custodian’s, Auditor’s,Management fees and
    other administrative expenses.

                               13
                    WHY INVEST IN CIS?

   Investment in diversified portfolio (risk is spread)

   Tax-free income (Internal Revenue Act, 2000 Act
    592 section 10)

   Good Returns
   Safety of Investments

   Professional    management     (skilled analysts,
    knowledge of the market, economies of scale by
    reason of size of funds, etc.)
                             14
               WHY INVEST IN CIS – CONT’D


   Capital gains distribution/dividend

   Liquidity (conversion of units to immediate cash)

   Flexibility (funds can be moved easily)

   Records management (Book Keeping function)

   Transparency (supervision by SEC, Audited Accounts, Annual
    General Meetings, Statement of Accounts)

   Investment plans and objectives clearly stated in prospectus or
    particulars of the scheme.

                             15
                     PERFORMANCE

   Valuation:Net Asset/Outstanding units = Unit Price

   Closing Price – Beginning Price + Dividends = Returns

   Compare Earnings against Inflation

   Risk versus Returns (returns commensurate with risk)

   Benchmark against Treasury bills/notes (risk-free), GSE all
    share Index.

                             16
            CONTRIBUTION TO ECONOMY

   CIS have large pools of funds, hence play intermediary role by
    providing funds to business ventures;

   Invest on the capital market through purchase of “new” (IPOs)
    and existing shares;

   Provide funds to government through investments on the
    money market i.e.Treasury bills, notes, and bonds);

   Assist individuals to build up capital to establish enterprises;


                                  17
         CONTRIBUTION TO ECONOMY –
                  CONT’D


   Provide avenues for individuals and institutions to
    build capital for homeownership as sponsored, for
    example, by HFC Bank. This in turn create jobs for
    artisans,    builders,    electricians,  plumbers,
    manufacturers, vendors of home appliances, home
    furnishings, and so on and so forth;

   Savings drive economic activities and development
    and that is what CIS encourage.

                           18

				
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