When it comes to choosing the right mutual funds in Ghana, it’s important to understand the different investment strategies and types of securities available. Mutual funds typically invest in cash, stocks, and bonds, but there are many subcategories within each asset class.
For example, a stock fund may target a particular industry such as technology, energy, health care, or utilities. These funds are referred to as sector funds because they focus on specific sectors or industries. Other stock funds may target large companies (large cap), medium-sized companies (mid cap), small companies (small cap), or a combination of these.
Bond mutual funds in Ghana can offer an array of varying risk profiles ranging from type of issuer (i.e., the government, state municipalities, or corporations), type of security (i.e., treasury bonds, mortgage-backed securities, or corporate bonds), and average maturity (short-term, mid-term, or long-term). In addition, bond funds can invest primarily in domestic securities, foreign securities, or both.
When deciding which mutual funds to purchase, start by selecting the fund characteristics that you would like to target. For example, do you want to invest in a fund that primarily holds fixed income securities (i.e., bonds), equity securities (stocks), or a balanced fund that invests in both? Do you want this fund to invest primarily in the securities of domestic or international issuers?
Once you have chosen a general type of fund, you’ll need to further define the specific securities that the fund will own. For example, if you are seeking a fund that invests in fixed income securities, you will want to specify the average maturity or term of the fund’s holdings. If this is a short-term investment, you will want to minimize your investment risk by purchasing shares in a fund that invests in short-term securities, such as a money market fund or a short-term bond fund.
If planning to purchase mutual fund shares in a fund that invests in equity securities, you will need to determine whether the fund will own large, mid, or small cap stocks. Will it have a value or growth-focused strategy? If there will be international investing, what countries or regions will the fund target?
Overall, taking the time to research and choose the right mutual funds in Ghana can help you build a diversified portfolio that meets your investment goals and risk tolerance.
Net Asset Value
Before discussing the various types of mutual fund fees, let us first define the common industry term Net Asset Value. The Net Asset Value, or NAV, is the current value of the net assets that a mutual fund owns. NAV is most often shown as a per share amount and is usually calculated at the end of each trading day. You may see the term NAV in a few circumstances.
When you buy and sell shares in an open-ended mutual fund, the transaction price is equal to the end-of-day NAV per share (excluding any type of commissions) as new shares are issued or redeemed. Shares of closed-ended funds may sell at NAV or slightly above or below this amount to reflect investor demand because there is a limited supply of shares. Also, certain expenses are often shown as a percentage of NAV.
Using an example to compute the NAV of a specific fund, assume that a mutual fund owns common stock in various companies, and at the end of the day all of the stocks the fund owns are worth GHS 20 million. Let us also assume that the fund has two million shares outstanding. This fund would then have a NAV of GHS 10 per share (GHS 20 million divided by 2 million shares). To be continued…