Mutual Funds

INVESTIGATING interchangeable FUNDS IN gold coast ITS RISK, RETURN AND PERFORMANCE pluck Over the years, intrustors have been attracted to reciprocal funds. This battleground seeks to do an-depth analysis of the Ghanian vulgar fund constancy between the years 2006 and 2010. An exhaustive literature review on joint funds and portfolio diversification bequeath be conducted. An assessment of the military operation of mutual funds volition be done using the Sharpe and Sortino proportions as well as the Jensen Alpha. Comparisons result be made with analogous indices to determine the attractiveness of the manufacture.The investiture system of fund managers allow also be analysed and recommendations made. This paper go forth provide investors with a broad everywhereview of the Ghanian mutual fund manufacture, its inherent risks and gets. INTRODUCTION The potential conflict between mutual fund companies and the mess who invest in them is a classic example of an agenc y problem. Consumers would like the fund in which they invest to use its judgment to maximize risk-adjusted expected issuances (Chevalier and Ellison, 1997). measurement the executing, risk and happens of mutual funds thus becomes haughty as rational investors need such information to make investment decisions. According to an article print by All Africa on the 8th of November, 2010, figures released by Ghanas statistical service indicated that the landed estates deliverance stood at GH? 44 billion, 60% more than estimated earlier. Per this figure, the rustic was deemed to have attained center field income status. Ghana recorded at the time, the largest Per Capita Income in West Africa and ranked 21st in the continent.The Ghanaian economys steady growth has attracted both domestic and international investors. Among the many investment opportunities in the country easy to investors is the attractive mutual fund industry which provides numerous benefits to its investors. Acco rding to the Securities and Exchange Commission, the number of mutual fund companies increased from 7 in the year 2008 to 9 in 2009. The total Net summation Value of funds under management by mutual funds companies was GH? 95,817,222. 27 in 2009 spell total fund mobilization stood at GH? 40,433,682. 0. A summary of the performance of the mutual fund industry in 2009 is shown in tables 1 and 2 in the appendix. This information provides several points of interest as to how the Ghanaian mutual fund industry has performed over the years and more importantly how it compares to other analogous mutual funds in the continent and elsewhere. This has informed the choice of enquiry and the need for research in the proposed area. meter the performance, risk and repossesss of mutual funds in the Ghanaian financial foodstuff has implications for a host of stakeholders.AIMS AND interrogation OBJECTIVES The general objective of this research is to assess the risks and retroverts associated w ith investing in mutual funds in Ghana. The deliberate also aims to draw a proportion between the performance of the Ghanaian mutual funds industry and similar financial markets. To achieve the general objectives, the following specific objectives have been formulated to guide in information collection and analysis. 1. To identify what makes mutual funds attractive to investors in Ghana 2. To identify the types of mutual funds available to Ghanaian investors 3.To measure the performance of mutual funds between 2006 and 2010 4. To compare Ghanaian mutual funds performance with similar market indices 5. To make recommendations to improve the management of mutual funds LITERATURE REVIEW According to Haslem, 2009, investing in vulgar funds has with many advantages. A ancient advantage is the professional management of investors money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. Secondly, by owning shares in a mutual fun d instead of owning somebody product lines or bonds, an investors risk is spread out.The topic behind diversification is to invest in a large number of assets so that a loss in any particular investment is decrease by gains in others. Again, if you buy only one security at a time, the transaction fees will be relatively large. Mutual funds are able to take advantage of their buying and merchandising size and thereby reduce transaction costs for investors. Finally, mutual funds boost liquidity as an investor can also sell his shares at any time. International mutual funds are rudimentary contributors to the globalization of financial markets and one of the main sources of capital flows to uphill economies.Despite their importance in emerging markets, little is known about their investment allocation and strategies (Kaminsky et al. , 2001). Fund managers however have numerous strategies for stock selection, identifying underappreciated or cheap securities, seeking growth potential and following past price trends (Chan et al. , 2002). According to them, most mutual funds adopt investment styles that cluster around a broad market benchmark. hardly a(prenominal) funds take extreme positions away from the index, but those who do are more likely to prefer growth stocks and past winners. Licensing requirements for operating a mutual fund in GhanaA Mutual Fund Company must be incorporated under the Companies Code 1963 (Act 197) as a cosmos limited li competency company with the sole aim of holding and managing portfolio of securities and other financial assets. An application is whence made by the company to the Securities and Exchange Commission (SEC) for a license to operate the fund. Company regulation, commission agreement, Custodial agreement and a Prospectus are required by the commission for review to begin with a license is issued (SEC, 2011). These stringent requirements help fasten a robust industry with compliant firms.Measuring mutual funds perfo rmance Considerable progress has been made in trine closely think areas the theory of portfolio selection, the theory of the pricing of capital assets under conditions of risk and the behavior of stock-market prices. Results obtained in all three areas are relevant for evaluating mutual fund performance (Sharpe, 1966). A number of measures have been used over the years for measuring the performance of mutual funds. The Sharpe ratio, Sortino ratio and Jensen Alpha are among the fewer distinguished ones. METHODS OF ANALYSING dataData to be analysed will be gathered from company websites. There are a few methodologies that I intend to use for the purposes of analyzing data collected. These will measure the performance of Ghanaian mutual funds, asses its risk, unpredictability and return. * Sharpe Ratio This is a ratio genuine by William F. Sharpe, a Nobel laureate, for the measuring of risk-adjusted performance in 1966. It measures the cadence of repletion return per unit of v olatility provided by a fund. It is calculated by divided the excess return of a fund by its volatility. Algebraically, we have Sharpe RatiopAll numbers are expressed commonly expressed on an annual basis, so the Sharpe ratio itself is expressed on an annual basis. The interpretation of the Sharpe ratio is straightforward the juicyer the ratio the better. A high ratio means that the fund delivered a high return for its level of volatility. In contrast, a ratio of 1. 0 indicates a return on investment that is proportional to the risk taken in achieving that return. A Sharpe ratio of less than 1. 0 shows a return on investment lower than the risk taken (Lhabitant, 2006). This ratio is appropriate for measuring the performance of mutual funds in Ghana for the purposes of the study. Sortino Ratio This ratio was developed by Frank Sortino. It is an extension of the idea behind the Sharpe ratio that calls for attention to an investors return target or minimal accepted return (MAR). The ratio uses target semi deviation in the denominator instead of the standard deviation. This is particularly useful when the return target is of importance to the investor (Christopherson et al. , 2009). * Jensen Alpha The average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolios beta and the average market return.Developed by Michael C. Jensen, this measure of a portfolios alpha value is the most widely used measure of the risk to return trade-off. It is also known as the abnormal return or the risk adjusted excess return (Russell, 2011). The skewness and kurtosis of the distribution of the data will also be analysed and discussed whiles comparing risk and return. RESEARCH STRATEGY, term SCALES AND RESOURCE IMPLICATIONS This research will involve the gathering and analysis of quantitative data available to the public. literature on existing research in mutual funds assessment will be discussed. another(prenominal) e lectronic sources of information such as online journals, articles, eBooks and databases will be accessed. Business reports and articles published in Ghanaian newspapers and journals such as the Securities and Exchange Commission Reports will also be consulted. The risk and return of a sample of mutual funds in Ghana will be calculated and discussed. A comparison will then be made with a benchmark performance in a market that has macroeconomic conditions similar to Ghana. This is justified as it enables logical submissions to be made from the comparisons. The use of financial markets indices will be employed.Conclusions will be drawn and recommendations made on how fund managers can heighten the performance of mutual funds in Ghana. Any lapses in the Ghanaian mutual funds industry will be pointed out. There will be no questionnaires involved or the gathering of primary data for the purposes of this study. Microsoft Excel and SPSS are the software packages that will be used to analys e data. No costs will be incurred for their usage as they are already in my possession. LIMITATIONS OF THE STUDY Secondary data has the restriction of not being effective in predicting the future.Time constraints may also be faced as a number of mutual funds will have to be analysed individually and compared with other indices. The later on limitation will however be overcome by effective time management and committing to the developed Gantt chart. RESEARCH ETHICS In the conduct of this research, the highest ethical standards will be observed. The issue of confidentiality of information will not arise as all data to be analysed in the research is already available to the public. The sources of information will be duly referenced and acknowledged.My independence from the organisations under study will ensure accountability and objectivity of the research. Recognized and accepted methods of analyzing data will also be used to exclude fabrication and falsification. SIGNIFICANCE OF T HE STUDY This study will fill the gap of knowledge about the performance of Ghanaian mutual funds. Fund managers as well as investors will benefit from the study and its recommendations. The study is significant as Ghanaian investors are increasingly being attracted to the mutual funds industry and its ability to effectively diversify their risk. GANTT CHART Week 1 25/09 Week 2 2/10 Week 3 9/10 Week 4 16/10 Week 5 23/10 Week 6 30/10 Week 7 6/11 Week 8 13/11 Week 9 20/11 TOPIC agree AIMS & OBJECTIVES OPENING SECTIONS DRAFT OUTLINE LITERATURE REVIEW METHOD/ APPROACH ANALYSIS/ RESULTS DISCUSSIONS/ CONCLUSIONS REFERENCE/ credit BINDING SUBMISSION TO FACULTY REFERENCES 1. All Africa. Ghana Nation Attains Middle Income Status. Online. Retrieved from http//allafrica. com/stories/201011081261. html (accessed 30 August, 2011) 2. Chan, L. K. C. , Chen, H-L. and Lakonishok, J. , On Mutual Fund I nvestment Styles. The Review of Financial Studies, Vol. 15, No. 5 (Winter, 2002), pp. 1407-1437. 3. Chevalier, J. and Ellison, G. , Risk Taking by Mutual Funds as a Response to Incentives. The Journal of Political Economy, Vol. 105, No. 6. (Dec. , 1997) pp. 1167 1200. 4. Christopherson, J. A. , Carino D. R. and Ferson, W. E. , Portfolio Performance criterion and Benchmarking. McGraw-Hill (2009), USA. 5. Haslem, J. A. Mutual Funds Portfolio Structures, Analysis, Management, and Stewardship. John Wiley and Sons (2009), New Jersey. 6. Kaminsky, G. L. , Lyons, R. K. and Schmukler, S. L. , Mutual Fund Investment in Emerging Markets An Overview. The realism Bank Economic Review, Vol. 15, No. 2 (2001), pp. 315-340 7. Lhabitant, F-S. , Handbook of Hedge Funds. John Wiley and Sons(2006), London 8. Russell. Jensen Alpha. Online. Retrieved from http//www. russell. com/us/ gloss/analytics/jensen_alpha. htm (accessed 20 July, 2011) 9. Securities and Exchange Commission Ghana. What are Mutual Funds? Online. Retrieved from http//ww. secghana. org/investor/display_mutualfunds. php (accessed 20 July, 2011) 10. Securities and Exchange Commission (2009) one-year Report, Accra Ghana. 11. Sharpe, W. F. , Mutual Fund Performance. The Journal of Business, Vol. 39, No. 1, Part 2 Supplement on protective covering Prices. (Jan. , 1996). Pp. 119- 138 APPENDIX TABLE 1. 0 NET ASSET VALUE OF MUTUAL FUNDS IN GHANA (2009) Source Securities and Exchange Commission Report (2009) TABLE 2. 0 FUNDS MOBILISED BY GHANAIAN MUTUAL FUNDS (2008 AND 2009) Source Securities and Exchange Commission Report (2009)