A question from a reader

After I had posted 101-what-is-investing (http://albertopoku.blogspot.com/2009/02/investing-101-what-is-investing.html) on the blog, I received this email from a reader which I will like to share with you.

Nihad Swallah
23 February at 18:37
I do not know whether to consider it magical or sheer coincidence that you have submitted this educative piece. For me, it has been a long awaited moment that has come to reality i have a question. After investing my initial capital, do i have to continue adding up money every month? what happens if i do not do that. Again, do i have to specify to my bankers that I need the compounding type of account? And finally, which is better, mutual fund or Money market fund?. Thank you so very much in advance and have a fruitful day.

Albert Opoku
23 February at 23:40
i am happy you are thinking about investing your money and making sure it works for you. i will recommend you speak with your bankers, ask for the various types of investments they have , especially on the interest rate per annum, the lock time period i.e for how long you cant' touch the money, the minimum you need to invest in each type of investment and the charges if you wanted your money before the end of the agreed period - i.e before the maturity date.

As to the compounding bit, it all depends on you, most financial institutions provide what is called a roll over option, which means at the end of the specified period they will reinvest your initial capital as well as the interest. if you go for the roll over option, you will be compounding your money.

The main investments most banks have are usually, CDs(Certificate of Deposits), Fixed Deposits, Savings (there may be different types of savings based on the minimum amount required) and T- bills (Treasure Bills - T Bills are sold by banks on behalf of the government ) as well as Bonds (this could be either private, corporate or government bonds)

It is worth noting that the rate offered for most of the Bank's own investment vehicles are usually less than that of the T-Bill rate.

Mutual funds invest in shares on the stock exchange, there are a number of Mutual funds in Ghana, Epack (by Databank) , Horizon Fund (by NTHC), Campus Fund (by a group or former Mensah Sarbah Hall students), Anidaso Fund, Gold Fund ( By Gold Coast Securities). It would be good to talk with at least three of theses, ask them which shares they invest in, which counties they invest in, what has been their performance over the last five years. Remember that Mutual Funds are long term investment vehicles as such it is not recommended if you wish to invest for the short time (below three/five years)

Money Market Funds invest in short term investments such as CDs,T-bills and short term Bonds. The main one in Ghana is the Mfund by Databank.Short term is usually for a year or less.

Databank also has the Bfund (Balance Fund) which is a mixture of Mutual fund and Money Market fund. So this is for a medium term investment - usually between one and three years.

Another investment is Unit Trust (they also invest in shares but the difference between Unit Trust and Mutual funds is in the technical calculations and the philosophy of investing). The main one in Ghana is the HFC Unit Trust by HFC Bank.

Another is the REIT Funds - this is a fund that invest in Real Estates. The main one in Ghana is the HFC REIT Fund.

I hope this information helps you to get started. Would you mind me posing your question on my blog as well as the answer?

Nihad Swallah 24 February at 04:40 Thanks a million, this has been informing. Go ahead and post the question, i do not mind at all.

Email me with any queries or comments.