Investment Accounts: Government Stocks and Unit Trusts
•Download as PPTX, PDF•
5 likes•3,153 views
This is a short slide on Investment Accounts, mainly covering Government Stocks and Unit Trusts. Prepared by the Freshman students of Actuarial Science (2014/15) at NUST in Bulawayo Zimbabwe!
Recommended
More Related Content
What's hot
What's hot (20)
Viewers also liked
Viewers also liked (11)
Similar to Investment Accounts: Government Stocks and Unit Trusts
Similar to Investment Accounts: Government Stocks and Unit Trusts (20)
Recently uploaded
Recently uploaded (20)
Investment Accounts: Government Stocks and Unit Trusts
- 1. Accounting 1B (CAC 1208) National University of Science and Technology Bulawayo, Zimbabwe Presentation by Actuarial Science Part 1 (09 March 2015)
- 2. Definitions Investment – laying out of money or capital in an enterprise with the expectation of profit. Investment Account – A type of financial account that contains a deposit of funds and/or securities that is held at a financial institution. The typical objectives are to achieve long term growth, income or capital preservation from the deposited asset portfolio.
- 4. Government Stock It is a financial instrument used by the government to finance a budget deficit i.e. difference between government income and expenditure This expenditure is mainly in the form of long term capital investments It largely forms part of the internal or domestic debt of a country Refers to bonds sold by the government Earns an interest paid annually or semi-annually
- 5. Uses Of Government Stocks Raise capital for long term projects To finance budget deficits Address inflation Address unemployment Investments
- 6. Advantages of Government Stock Safe form of investment as payments and interests are backed by the full faith and taxing power of the government. Investor’s bonds cannot be lost or stolen. They are easily sold if the investor wants to cash out. Interest payments are credited directly to the owner’s bank or investment account No state income taxes. The rate of return is competitive to the market
- 7. Demerits of Government Stocks Prices can fall - Increased interest rates will cause bond prices to fall. Political risk - Interest paid and principal payment on treasury bonds is subject to political risk, bonds are issued over a long period of time and anything can happen in those times Broker mark up - Those who buy government bonds through a broker receive the yield for price the broker offers
- 8. Demerits of Government Stocks To reap the full reward of the investment, it may take up to thirty years of waiting for the bond to mature.
- 11. WHAT ARE UNIT TRUSTS ? Defined as: Collective investment schemes that allow investors to pool their money together in a fund managed by a professional fund manager, who will buy variety of different holdings. Unit holders do not purchase the securities in the portfolio directly Ownership of the fund is divided into units of entitlement.
- 12. FEATURES OF UNIT TRUSTS The number of units held depends on the unit purchase price at the time of investment and the amount of money invested. The return on investment of unit holders is usually in the form of income distribution and capital appreciation. Unit trusts allow investors to have easy access to a wide range of investment exposures not normally available to them.
- 13. FUND MANAGER A Fund Manager is a person hired by the Financial Services Company, or bank, who manages investments on behalf of a number of investors while being supervised and monitored by the financial services company S/He invests the pooled funds in a portfolio which may include the following asset classes: Bonds & Deposits Shares Property Commodities
- 14. BENEFITS OF UNIT TRUST Affordability: Unit trusts are very affordable. Investors can start with low investment amount. Liquidity: Unit trusts are easily bought and sold. Diversification: Can concentrate on more than one or two investment portfolios, reducing risk of losses Professional Fund Management: Approved professionals have training and experience that enable them to make better decisions on investments
- 15. BENEFITS OF UNIT TRUST (CONT’D) Investment Exposure: For an individual investor, it is sometimes difficult to gain exposure to a particular asset class. Wholesale Investment Costs & Access to Other Assets classes: Fund managers invest in larger amounts, they are able to get access to wholesale yields and products The Comfort of Regulation: Regulations provide investors with a level of comfort that they are investing in a safe investment mechanism.
- 16. DISADVANTAGES OF UNIT TRUSTS Unit Trusts are not allowed to borrow, therefore reducing potential returns. Bid/Ask prices exist - with the price that you can buy a unit for usually higher than the price you can sell it for - making investment less liquid. Not good for people who want to invest for a short period. Not good for people who want to avoid risks at all costs.
- 17. TYPES OF UNIT TRUSTS Equity Funds Money Market Funds Fixed Income Funds Real Estate Investment Trusts (REITS) Exchange Traded Funds (ETF) Balanced Funds
- 18. Equity Funds An equity unit trust is the most common type of unit trust The major portion of its assets are generally held in equities or securities of listed companies.
- 19. Money Market Funds Money market funds operate in a similar way to a bank account, in that the unit price is normally set at a fixed amount Money market funds invest in low risk money market instruments that are in effect short-term deposits (loans) to banks and other-low risk- financial institutions, and in short-term government securities.
- 20. Examples The following slides will show us Real Life examples of Unit Trusts. In their order, they have been provided by: 1. Afrasia Capital Management 2. Old Mutual
- 23. Fixed Income Funds These funds invest mainly in government securities, corporate bonds, and money market instruments such as bankers acceptance and fixed deposits The objective of a fixed income fund is usually to provide regular income It is possible, however, for fixed income funds to generate both capital gains and losses during a period of volatile interest rate.
- 24. Real Estate Investment Trusts (REITs) REITs invest in real properties, usually prominent commercial (office) property By acquiring units in a listed REITs it is possible to invest a small amount to gain exposure to the property market and have diversification in a portfolio.
- 25. Exchange Traded Funds (ETF) ETF is linked unit trust fund whose investment objective is to achieve the same return as a particular market index ETF often have low expense ratios and can be bought and sold throughout the trading day through a stockbroker, on an exchange.
- 26. Balanced Funds Some investors may wish to have an investment in all the major asset classes to reduce the risk of investing in a single asset class A balanced unit trust fund generally has a portfolio comprising equities, fixed income securities, and cash.
- 27. References Datvest, November 2012 News letter Digital Look, http://www.digitallook.com/ SlideShare http://www.slideshare.net/sp4532/the- pros-and-cons www.investopedia.com/terms/p/purchasing power Making Sense of Unit Trusts, produced by IMAS
Editor's Notes
- Prices can fall- increased interest rates will cause bond prices to fall. Longer term bonds will have a greater market price change than short term bonds . Investors who want to sell the government bonds to re-invest the proceeds at higher rates will suffer a loss of principal on the sale. Political risk - interest paid and principal payment on treasury bonds is subject to political risk, the U.S treasury issues 30 year bonds and a lot happens in such a long time. Broker mark up- those who buy government bonds through a broker receive the yield for price the broker offers. The investors add a mark up to the bond price for their profit margin. The bond mark up reduces the yield to the investor
- As a point to add on Ownership of fund, add this “as the fund increases or decreases in value, the value of each unit increases or decreases accordingly.”
- The return on investment of unit holders is usually in the form of income distribution and capital appreciation, derived from the pool of assets supporting the unit trust fund. Each unit earns an equal return, determined by the level of distribution and/or capital appreciation in any one period. Unit trust investors are typically those with savings to invest, who neither have the time nor the inclination to hold portfolios of direct investments or shares. Unit trusts allow investors to have easy access to a wide range of investment exposures not normally available to them.
- A Fund Manager hired by the Financial Services Company, or Banks, who will manage the investments collectively on behalf of a number of investors supervised and monitored by the financial services company A professional fund manager then invests the pooled funds in a portfolio which may include the asset classes listed below: Bonds & Deposits Shares Property Commodities
- ##Removed parts# This next phrase was removed, however presenter can mention it. “For an individual to maintain his own portfolio of investments, he needs to keep up to date with market information and sentiments. Investing in unit trusts transfers most of the necessary 'know-how' of investing to those best equipped to handle it - the professional fund managers. Also allude to the fact that from the next examples, it can be noted that they can be obtained from as low as a $100 see Afrasia Report As a point to add on to the explanation of liquidity, highlight that… ‘Most investors prefer that their investment to be liquid. That is, they can easily buy and sell without difficulties” Diversification: Rather than concentrating an investment portfolio of one or two investments or shares, a portfolio of market securities can be held. In simple terms, investment into unit trusts means diversification of risk: “not putting all your eggs in one basket.” Professional Fund Management: The people managing unit trusts are approved professionals. Their training and background ensures that decision making is structured and according to sound investment principles.
- Investment Exposure: For instance, if an investor with $5,000 wants to gain exposure to the Zimbabwe property market, global equity markets and the Zimbabwe bond market, it would be impossible to simultaneously hold a direct investment portfolio in all of these markets. Wholesale Investment Costs and Access to other Assets Classes: Fund managers invest in larger amounts, they are able to get access to wholesale yields and products which are impossible for the individual investor to obtain.
- ##Emphasis Point 2: The objective of a fixed income fund is usually to provide regular income, with less emphasis on producing capital growth for investors
- More notes: REITs invest in real properties, usually prominent commercial (office) properties and provide the investor with an opportunity to participate in the property market in a way which is normally impossible to the small time investor By acquiring units in a listed REITS it is possible to invest a small amount to gain exposure to the property market and have diversification in a portfolio.
- And a market index is: A stock index or stock market index is a measurement of the value of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments. For instance in Zimbabwe we have 2, which are Industrial Index and Mining Index