Botswana Insurance Fund Management (Bifm) has received a ‘phenomenal’ response and acceptance of their newly introduced unit trusts, according to its Head of Retail, Setshwano Ngope.
In an interview with Finance, Ngope said that since Bifm introduced their unit trusts in April this year, the institution has been overwhelmed by the high demand. She observed that, “Contrary to popular belief, Batswana have money to save and invest, but many have for a long time lacked adequate information on alternative ways of investing their money. They have also noticed that they have few competitors offering this kind of investment locally. She also observed that financial knowledge and literacy is generally low among Batswana even those who earn much.
Although she declined to reveal figures, Ngope hinted that they have mostly attracted workers of various income classes and middle-aged people who mostly want to invest and prepare for retirement as soon as they can. “We have many clients in their thirties and want to consider preparing an investment they can enjoy in their retirement ages,” she said. Bifm offers four types of unit trusts and returns depend on which one a client has invested their money in. There are short and long term funds. The Money Market Fund, Balanced Prudential Fund, Offshore Equity Fund and Offshore Balanced Funds are the unit trusts that that can be chosen depending on how much and how long one envisions to invest. The difference between saving money in a bank and investing it is that when investing, the money grows in relation to the markets and inflation plays a role in the fluctuation of the interest in the invested funds.
Ngope has explained that, “the various assets purchased are combined into a portfolio, the value of this portfolio at any given time is split into equal portions or units. When you invest in a unit trust you buy a certain amount of units. The price you pay is essentially the market value, daily, of what that unit trust is invested in. Share prices generally rise in a healthy economy, in an ailing economy prices will fall and subsequently so will the prices of units in a unit trust, investors need to be aware of fluctuating share prices.” One can invest in a lump sum amount or make monthly deposit to unit trust. Unit trust are considered less risky an investment because it is done through investors pooling their funds with that of other investors in a unit trust fund, where they will get exposure to a broad range of investment vehicles. Unit Trusts were first introduced to the Botswana market in the early 2000’s and this was not a common investment of choice among Batswana.
Unit trusts are, “vehicles in which investors have the opportunity to pool their money together or Collective Investment Undertaking: (CIU) with other investors who have similar objectives. This pool of money is managed by experienced investment managers in different assets, such as a wide range of local and international equities, bonds, property and money market instruments.” Bifm deals with asset management and investment.
Advantages and Disadvantages ofunit trusts:
• There are no minimum investment periods when you invest in a unit trust.
Disadvantages of unit trusts:
• Unit trust may have high cost base if you are investing directly.
• Unit trusts may not be liquid and early termination costs may apply for premature termination.
• It is a type of debt instrument which is not secured by collateral (or physical asset). In case of bankruptcy, the bond holders are given priority over the debenture holders.