Mutual Funds

INVESTIGATING MUTUAL funds IN gold coast ITS RISK, RETURN AND PERFORMANCE ABSTRACT Over the geezerhood, investors have been attracted to vulgar property. This field of view seeks to do an-depth analysis of the gold coastian uncouth breed industry among the years 2006 and 2010. An exhaustive literature recapitulation on plebeian bills and portfolio diversification go out be birthed. An evaluatement of the mental process of vernacular finances pass on be done using the Sharpe and Sortino proportionalitys as well as the Jensen Alpha. Comparisons leave be made with analogous indices to determine the attractiveness of the industry.The investing strategy of entrepot managers will as well as be analysed and recommendations made. This paper will provide investors with a broad oerview of the Ghanaian interchangeable line industry, its organic jeopardys and returns. INTRODUCTION The potential conflict between interchangeable memory companies and the great deal who invest in them is a classic example of an agency problem. Consumers would the likes of the fund in which they invest to use its judgment to maximize fortune-adjusted pass judgment returns (Chevalier and Ellison, 1997). measurement the operation, risk and returns of mutual money thus becomes imperative as rational investors need such information to make investiture decisions. match to an article create by All Africa on the 8th of November, 2010, figures released by Ghanas statistical service indicated that the countrifieds parsimoniousness stood at GH? 44 billion, 60% more than estimated earlier. Per this figure, the country was deemed to have attain middle income status. Ghana recorded at the time, the largest Per Capita Income in West Africa and be 21st in the simple.The Ghanaian economys steady harvest-tide has attracted both domestic and international investors. Among the many investment opport building blockies in the country available to investors is the attracti ve mutual fund industry which provides numerous benefits to its investors. consort to the Securities and exchange charge, the material body of mutual fund companies increased from 7 in the year 2008 to 9 in 2009. The total Net Asset take account of gold under management by mutual funds companies was GH? 95,817,222. 27 in 2009 while 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 search in the proposed area. Measuring the performance, risk and returns of mutual funds in the Ghanaian financial market has implications for a host of stakeholders.AIMS AND RESEARCH OBJECTIVES The general ob jective of this research is to assess the risks and returns associated with investing in mutual funds in Ghana. The accept also aims to draw a comparison between the performance of the Ghanaian mutual funds industry and similar financial markets. To achieve the general objectives, the chase specific objectives have been formulated to guide in info disposition and analysis. 1. To determine 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 accord to Haslem, 2009, investing in shared funds has with many advantages. A primary advantage is the professional management of investors money. Investors procure funds because they do non have the time or the expertise to manage the ir own portfolio. Secondly, by owning shares in a mutual fund instead of owning individual stocks or bonds, an investors risk is spread out.The musical theme behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. Again, if you buy only one earnest at a time, the transaction fees will be relatively large. plebeian funds are able to take advantage of their buying and interchange 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 key contributors to the globalization of financial markets and one of the main sources of capital flows to emerging economies.Despite their richness in emerging markets, little is known about their investment apportioning and strategies (Kaminsky et al. , 2001). shop managers however have numerous strategies for stock selection, identifying un derappreciated or tinny securities, seeking growth potential and following past price trends (Chan et al. , 2002). According to them, most mutual funds adopt investment styles that cluster somewhat a broad market bench mark. Few funds take constitutional positions away from the index, but those who do are more likely to advance 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 public modified liability company with the sole aim of holding and managing portfolio of securities and other financial assets. An application is then made by the company to the Securities and Exchange relegating (SEC) for a license to operate the fund. Company regulation, Management sympathy, Custodial agreement and a Prospectus are required by the commission for review before a license is issued (SEC, 2011). These stringent requirements help ensure a robust industry with com pliant firms.Measuring mutual funds performance Considerable progress has been made in three closely connect areas the theory of portfolio selection, the theory of the pricing of capital assets under conditions of risk and the bearing 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 utilise over the years for measuring the performance of mutual funds. The Sharpe ratio, Sortino ratio and Jensen Alpha are among the some distinguished ones. ruleS OF ANALYSING DATAData to be analysed will be collect from company websites. There are a few methodologies that I have in mind to use for the purposes of analyzing entropy collected. These will measure the performance of Ghanaian mutual funds, asses its risk, volatility and return. * Sharpe Ratio This is a ratio developed by William F. Sharpe, a Nobel laureate, for the measuring of risk-adjusted performance in 1966. It measures the amount of plain return per unit of volatility provided by a fund. It is calculated by divided the excess return of a fund by its volatility. Algebraically, we have Sharpe RatiopAll come are expressed usually expressed on an annual basis, so the Sharpe ratio itself is expressed on an annual basis. The interpretation of the Sharpe ratio is univocal the higher 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 intellect behind the Sharpe ratio that calls for attention to an investors return site or minimal accepted return (MAR). The ratio uses target semi aberrancy 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), presumptuousness 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, beat SCALES AND RESOURCE IMPLICATIONS This research will involve the concourse and analysis of quantitative data available to the public. Literature on existing research in mutual funds ass essment will be discussed.Other electronic 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 commitment 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 reassert 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. some(prenominal) 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 t he software packages that will be used to analyse data. No costs will be incurred for their manipulation as they are already in my possession. LIMITATIONS OF THE STUDY Secondary data has the limitation of not being impelling in predicting the future.Time constraints whitethorn 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 pen 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 a void fabrication and falsification. SIGNIFICANCE OF THE STUDY This study will change 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 calendar week 1 25/09 hebdomad 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 point AGREED AIMS & OBJECTIVES OPENING SECTIONS DRAFT OUTLINE LITERATURE REVIEW METHOD/ APPROACH ANALYSIS/ RESULTS DISCUSSIONS/ CONCLUSIONS REFERENCE/ ACKNOWLEDGEMENT 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 Investment 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 Measurement 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 World Bank Economic Review, Vol. 15, No. 2 (2001), pp. 315-340 7. Lhabitant, F-S. , vade mecum of Hedge Funds. John Wiley and Sons(2006), London 8. Russell. Jensen Alpha. Online. Retrieved from http//www. russell. com/us/glossary/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) Annual Report, Accra Ghana. 11. Sharpe, W. F. , Mutual Fund Performance. The Journal of Business, Vol. 39, No. 1, weaken 2 Supplement on Security 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)