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WHAT YOU NEED TO KNOW ABOUT
MUTUAL FUNDS
** FBN Capital launches a new investment product…… FBN
Heritage Fund
...more
What
are Mutual Funds?
A mutual fund is a form of collective investment scheme that
pools money from individual investors, companies, and other
organizations. The pooled fund is invested by a fund manager
in stocks, bonds, short term money market instruments, and/
or other securities. The distribution of the investment by
the fund manager depends on the type and goal of the fund.
The fund manager trades the fund’s underlying securities,
realizing capital gains and collects dividend or interest
income, which is then passed to the individual investors in
proportion to their holdings.
The value of a share of the mutual fund, known as the net
asset value per share (NAV), is calculated daily based on
the value of all the assets of the fund divided by the
number of shares currently issued and outstanding.
Mutual funds are generally organized as corporations or
trusts, and, as such, they have a board of directors or
trustees elected by the shareholders. Almost all aspects of
their operations are externally managed. They engage a
management company to manage the investment for a fee,
generally based on a percentage of the fund's average net
assets during the year. The management company may be an
affiliated organization or an independent contractor. They
sell their shares to investors either directly or through
other firms such as broker-dealers, financial planners,
employees of insurance companies, and banks. Even the
day-to-day administration of a fund is carried out by an
outsider, which may be the management company or an
unaffiliated third party.
Types of Mutual Funds
There are various ways of classifying mutual funds, but the
most common is based on the type and maturity of underlying
securities selected for investment. On this basis we have
four types:
Other ways of classifying funds are:
Open – ended versus closed- ended funds – In the case of open ended funds the fund manager is
authorized to continuously issue new shares to willing
investors and to buy back shares from investors willing to
leave the fund. In closed–ended funds a limited number of
shares are issued from inception.
Index funds versus active management; fund of funds; hedge
funds; ethical funds; growth versus income funds and sector
funds are other means of classification.
Mutual Funds versus other investments
Mutual funds offer various advantages over investment in
individual stocks. For example, the transaction costs for
higher volumes are divided among all the share holders, who
also benefit from volume discounts and the professional
expertise and research capabilities of a fund manager.
Expense ratios are therefore likely to be lower in the case
of larger funds. They also share the same risks associated
with the underlying securities. If the fund invests
primarily in stocks, it is usually subject to same vagaries
in the stock market.
Advantages of Mutual Funds.
Mutual funds have become popular because they offer 4
advantages:
Diversification
Investors have access to a variety of securities which they
may not ordinarily afford in their individual capacities.
Diversification sharply reduces the risk of loss arising
from recession in a particular company or industry.
Mutual funds provide opportunity for small investors to have
access to a wide range of investments, which their size
would ordinarily have prevented them.
Top
Professional management
Few investors have the time or expertise to manage their
personal investments every day, to efficiently reinvest
interest or dividend income, or to investigate the thousands
of securities available in the financial markets.
Professional fund managers have access to extensive
research, market information and skilled securities traders,
who take investment/ disposal decisions on behalf of
investors.
Liquidity
Units in an open-ended mutual fund mutual can be bought or
sold on any business day, so Investors have access to their
money. Investors may choose to receive dividends declared in
form of cash or reinvest the proceeds in additional units of
the Fund.
While many individual securities can also be bought and sold
readily, others aren't widely traded. In those situations,
it could take several days or even longer to build or sell a
position.
Convenience
Mutual funds offer services that make investing easier.
Units of the Fund can be bought or sold by mail, telephone,
or the Internet, so you can easily move your money from one
fund to another as your financial needs change. You can also
schedule automatic investments into a fund from your bank
account, or you can arrange automatic transfers from a fund
to your bank account to meet expenses. Most major fund
companies offer extensive recordkeeping services to help you
track your transactions, complete your tax returns, and
follow your funds' performance.
If you have any questions /comments please contact the
investment management team at FBN Capital
fbnheritagefund@fbncapital.com.
ABOUT FBN HERITAGE FUND
FBN Heritage Fund is an open-ended
mutual fund with initial tranche of 50,000,000 units being
offered at par, at N100 per unit. The fund is balanced
in its asset allocation structure and will invest proceeds
between the ranges of 50-65% in stocks; 15-25% in quality
fixed income instruments (bonds); 5-10% in money market
instruments and maximum of 5% in real estate investments.
The fund would be the largest fund from initial launch in
the history of the country. The expense ratio is therefore
projected to be among the least, while the financial
forecasts project; 22%, 28% and 29% returns in the first
three years of operations.
The fund aims to achieve long-term
capital appreciation of its assets by investing in
diversified portfolio of investments. Dividends would be
paid to unit holders periodically and they would have the
option to take them in form of cash or reinvest proceeds to
acquire additional units of the Fund.
The Fund would be managed by FBN
Capital Limited, a wholly owned investment banking
subsidiary of First Bank, while Leadway Trustees Limited
would act as trustees to the Fund.
The public offering of the fund is subject to regulatory
approvals.
If you have any questions /comments please contact the
investment management team at FBN Capital
fbnheritagefund@fbncapital.com. |
