Investment Instruments on the Ghanaian Market
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| Investment Instruments on the Ghanaian Market |
Wondering what to invest in assuming you any money you right now. The following instruments are available on the financial desk mostly through the banks.
- Savings Account
Even though savings is quite different from real investing, its often the head start for those who don’t have enough to put into an investment at a goal. Most of us have a bad spending attitude and so watching over small money to accumulate with us is so difficult and savings accounts are the best way to start and later transfer the money into real investments.
Savings accounts have the following characteristics;
- Risk free
- Interest in variable – the higher the amount, the higher the interest
- Flexible – can have access to the funds at anytime
- Interest currently ranges between 2 -10% per annum depending on the amount and the institution.
- Can start with a relatively small amount e.g. GHC 10.00
- Fixed Deposit Account
Fixed deposit is a type of savings account where the account holder signs an agreement with bank not to touch the said amount of money in the account until a specified period (Maturity) within the agreement at a fixed interest rate. They have the maturity period within 30 days, 60 days, 91 days, 182 days and 1 year. They have the following;
- Risk free
- Returns are certain - Fixed interest rate
- Fixed maturity period
- A relatively higher interest rate than a normal savings account
- Principal and interest can be rolled over upon maturity
- Interest currently ranges between 11– 18% per annum depending on the amount and the period. However, interest can be negotiated for higher amounts.
- Can be easily discounted. However, there is a fee for early redemption.
- There are other similar deposit products which makes it possible for investors to top up on monthly basis.
- Treasury Bills
T- bills as popularly known, are issued by the government to finance its national debt.
The investor’s yield comes from the increase in value of the security when it matures. T-bills have zero default risk because if the government ran out of money, it could easily print more money.
- Risk free
- Issued by the Government
- Certain Returns - Fixed interest rate
- Fixed maturity period
- You can start with as low as GHS 50
- Treasury bills can be bought at cost or face value.
- Certificate of Deposit
A certificate of deposit is a bank-issued security that documents a deposit and specifies the interest rate and the maturity date.
A CD is a term security as opposed to a demand deposit. Term securities have a specified maturity date; demand deposits can be withdrawn at any time.
CD’s can be bought and sold till maturity. Whoever holds the instrument at maturity receives the principal and interest (bearer instrument)
The maturity periods are 1-4 month and 6 months.
- Commercial Paper
Commercial paper securities are unsecured promissory notes, issued by corporations, that matures in no more than 270 days (9 months).
Because these securities are unsecured, only the largest and most credit worthy corporations issue them.
- Bonds
Bonds are securities that represent a debt owned by the issuer to the investor. Bonds obligate the issuer to pay interest to the investor periodically until the bond matures. At maturity the bondholder receives the Face value and last interest payment. Bonds are;
- Long term instrument
- Has a fixed interest rates
- Considered as a lender to the organization whiles you are considered as an owner with shares
- Lower risk than shares – when there is bankruptcy, debts are paid before equity
- Shares/Stocks
A share of stock in a firm represents ownership. A shareholder owns a percentage interest in the firm, consistent with the percentage of outstanding stock held.
Investors can earn a return from shares through:
- Dividend payments
- Rise in stock price
- Shares are riskier than bonds because shareholders have a lower priority than bondholders.
- They are investment in Companies
- Buying it means you are part of the owners of the company
- Uncertain returns – quite risky
- Traded on the Ghana Stock Exchange
- Earn dividends
- Value appreciates/depreciates
- You need an expert(broker) to advise you on the type of company to invest in
- You have to monitor the performance of your shares on the stock market
- Mutual Funds
- Professionally managed type of collective investment scheme
- Diversification
- Liquidity
- Pools money from many investors and invests typically in securities, such as stocks, bonds, short-term money market instruments etc.
- Returns are uncertain – quite risk
- Can start with relatively smaller amounts e.g. GHS 10
Examples of these mutual funds in Ghana are Epack, Mfund, ArkFund- all of Databank, HFC Realty, etc.
Investing isn’t that difficult, just prepare your mindset, change your attitude and go pick an instrument that meets your comfort and START! The most important thing about investment is that, you need to start no matter how small, but start NOW and grow your investment over time.
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