What is a Collective Investment Scheme?
Collective Investment Schemes are investments where investors' funds are pooled and managed by professional managers.
Investing in shares has traditionally yielded unrivalled returns, offering investors the opportunity to build real wealth. Yet, the large amounts of money required to purchase these shares are often out of reach for smaller investors. The pooling of investors' funds makes Collective Investment Schemes the ideal alternative, providing cost effective access to a wide variety of local and international shares / equities (companies listed on a stock exchange), bonds, and money market instruments such as fixed deposits, treasury bills and call accounts.
Pooling enables investors to reduce transactional costs involved in buying and selling of securities and gives investors the ability to negotiate for better returns than they would get if investing individually.
Safety and transparency
The collective investment industry is strictly regulated by the Capital Markets Authority's Collective Investment Scheme (CIS) Regulations, 2001. The regulations allow the investor to enjoy total transparency of fees, charges and investment performance.
However, the Capital Markets Authority does not take any responsibility for the financial soundness of a scheme for correctness of any statements made or opinions expressed in this regard.
Tips for successful investing:
Identify your goal (these should be realistic)
Establish a time frame
Identify your level of risk based on your current responsibilities
Understand the volatility of return associated with different investment types
Usually identified as having the potential for the highest return of all the investment classes, but with a higher level of risk i.e. share investments have the most volatile returns over the short term.
An investment of this type of asset should be based on the investors' objectives but it is recommended that it be viewed on a medium to long-term horizon e.g. over five years.
Property yields are normally stable and predictable as they comprise many contractual leases, the rentals of which are passed through to investors.
Property share prices however fluctuate with supply and demand and are counter cyclical to the interest rate cycle.
Property is an excellent inflation hedge as rentals escalate with inflation, ensuring distribution growth, and property values escalate with inflation ensuring net asset value growth.
Bonds generally have a lower risk than shares because the holder of a bond has the security of knowing that they will be repaid in full by government authorities. Corporate bonds can also be included and have a slightly higher risk than government-issued bonds. An investment in this type of asset should be viewed with a 3 to 6 year horizon.
Cash is generally regarded as the safest investment. Whilst it is theoretically possible to make a capital loss investing in cash due to the effects of inflation etc., it is highly unlikely.
Due to its stable nature, cash has a relatively low return in comparison to the other investment classes. An investment in this type of asset may be viewed with a horizon less than 3 years.
These portfolios invest in selected shares across all the industry sectors of the Nairobi Stock Exchange and offer medium to long-term capital growth as their primary investment objective.
Balanced portfolios invest in a wide spread of investments in the equity, bond, money markets and aim to provide capital appreciation together with interest income over the medium to long-term.
Fixed Interest Portfolios
Fixed Interest Portfolios invest in bonds, money market instruments and other income earning securities and aim to provide interest income over the short to medium-term. They also provide the opportunity for capital growth.