CHARTERED INSTITUTE OF

ADMINISTRATORS AND MANAGEMENT

CONSULTANTS (CIAMC) – GHANA

HOW INFORMED ARE GHANAIANS REGARDING THE

VIABILITY OF COLLECTIVE INVESTMENT SCHEME? A CASE OF
HO MUNICIPALITY IN THE VOLTA REGION OF GHANA

BY

RAYMOND BUAMAH KOMLA

CIAMC/PEQP/J09/003

A PROFESSIONAL QUALIFYING RESEARCH PROJECT SUBMITTED TO CHARTERED

INSTITUTE OF ADMINISTRATORS AND MANAGEMENT CONSULTANTS (CIAMC)-
GHANA IN PARTIAL FULFILLMENT FOR THE AWARD OF A PROFESSIONAL
POSTGRADUATE DIPLOMA IN BUSINESS ADMINISTRATION AND MANAGEMENT
CONSULTANCY.

JULY, 2010

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 DECLARATION

I hereby declare with academic honesty that this is an original piece of work that I

undertook. I further affirm that this work has never been submitted to any University or

Institution of learning in part or whole for the award of any academic or professional

qualification.

------------------------------------------- Date: ----------------------------------

RAYMOND BUAMAH

(Student)

-------------------------------------- Date: -----------------------------------

MR. DODJI M. ATTIOGBE

(Supervisor)

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 ACKNOWLEDGEMENTS

I would like to express my heartfelt thanks first and foremost to the Almighty God for his

guidance and protection throughout the programme. I also want to acknowledge the

following people for their contribution towards this work:

My wife Mrs. Grace Dzifa Buamah, my lovely daughter Miss Seyram Buamah and my

brother Mr. Stanley Buamah for the love, encouragement, support and understanding they

have for me throughout the period of the Study. Thank you very much.

Mr. Dodji M. Attiogbe, my supervisor and the Assistant Director, (ITS) Community Water

and Sanitation Agency, Volta for his knowledge contribution and guidance. I am so

grateful.

Mr. Harrison Afeku – District Manager, Gold Coast Securities Ghana Ltd. Hohoe, thank

you very much for supplying me with relevant data on the performance of Collective

Investment Schemes.

To my colleagues at Ho Municipal Mutual Health Insurance Scheme, I say, I very much

appreciate your understanding and encouragement.

May God richly bless you and restore all that you have lost.

Thank you.

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 LIST OF ABBREVIATIONS

MoFEP - Ministry of Finance and Economic Planning

CIS - Collective Investment Scheme

ROI - Return on Investment

SEC - Security and Exchange Commission

IOSCO - International Organization of Security Commissions

HFC - Home Finance Company

GSE - Ghana Stock Exchange

SRO - Self-Regulated Organizations

NAVPS - Net Asset Value Per Share

FINSSP - Financial Sector Strategic Plan

USAID - United State Agency for International Development

TIPCEE - Trade and Investment Programme for a Competitive

Export Economy

MFW4G - Making Finance Work for Ghana

CIAMC - Chartered Institute of Administrators and Management

Consultants

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CISCA - Collective Investment Schemes Control Act

AMC - Asset Management Company

SIM - Sanlam Investment Management

ACI - Association of Collective Investments

AUT - Association of Unit Trusts

CAPM - Capital Assets Pricing Model

ICI - Investment Company Institute

SAGE - South Africa Growth Equity fund

JSE - Johannesburg Stock Exchange

CEO - Chief Executive Officer

ASISA - Association for Savings and Investment of South Africa

FSB - Financial Services Board

FIA - Financial Institutions Act

MA - Municipal Assembly

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 ABSTRACT OF THE STUDY

Collective Investment Schemes are becoming very popular investment vehicles in Ghana

because they are, among other things, transparent, liquid and easily accessible. The

growing investor knowledge, good market returns and its suitability for diversification which

minimises risk, also contributes to its popularity. The industry which consist of Mutual

Funds and Unit Trust Funds represent one of the fastest growing segments of the financial

industry in Ghana, as it allows for small and flexible investments by ordinary Ghanaians.

The research was conducted in the Ho Municipality where 200 respondents were sampled

out of a total population of 200,000 through simple random sampling technique to

ascertain the financial literacy status of Ghanaians with regards to the viability of Collective

Investment Schemes.

Various existing written materials on Collective Investment in Ghana, South Africa, and

Nigeria were critically reviewed to ascertain among other things, the contributions made to

the various economies, regulatory frameworks, advantages and disadvantages of

Collective Investment Schemes.

The empirical study revealed that between January, 2005 and December, 2008, Collective

Investment Schemes in Ghana performed beyond the expectation of investors as some of

them made as much as 250.19 percent gain on investor’s capital. However, majority of

Ghanaians were not aware of the viability of the industry due to inadequate information on

the industry.

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 TABLE OF CONTENT

PAGE

DECLARATION i

ACKNOWLEDGEMENTS ii

LIST OF ABBREVIATION iii

ABSTRACT OF THE STUDY v

TABLE OF CONTENT vi

LIST OF TABLES x

LIST OF FIGURES xi

CHAPTER ONE: INTRODUCTION

1.0 GENERAL OVERVIEW OF THE STUDY 1

1.0.1 What is Investment 2

1.0.2 Collective Investment Scheme Evolution 5

1.0.3 Protection of Collective Investment Scheme Investors 14

1.0.4 Advantages of Collective Investment Schemes 16

1.0.5 Disadvantages of Collective Investment Schemes 18

1.1 PROBLEM STATEMENT 19

1.2 PURPOSE OF THE STUDY 20

1.2.1 Research Questions 21

1.2.2 Specific Objectives of the Study 22

1.3 RATIONAL OF THE STUDY 23

1.4 LITERATURE REVIEW 23

1.5 RESEARCH DESIGN 23

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1.5.1 Data Collection Technique 24

1.5.2 Sample Size 25

1.5.3 Sample Technique 25

1.6 SCOPE OF THE STUDY 25

1.7 RESEARCH LIMITATIONS 26

CHAPTER TWO: LITERATURE REVIEW

2.1 INTRODUCTION 27

2.2 THE THEORY OF INVESTMENT 27

2.2.1 Definition of Investment 29

2.3 THE CONCEPT OF FINANCIAL LITERACY 29

2.4 THE THEORY OF COLLECTIVE INVESTMENT SCHEME 35

2.5 REGULATION OF COLLECTIVE INVESTMENT SCHEME 37

2.5.1 What are the Licensing Requirements for Operating CIS? 37

2.6 MEASURING THE PERFORMANCE OF CIS 48

2.7 THE IMPACT OF CIS ON FINANCIAL SECTORS 50

2.7.1 CIS Industry in the U.S 50

2.7.2 CIS Industry in Ghana 51

2.7.3 CIS Industry in South Africa 52

2.7.4 CIS Industry in Nigeria 53

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CHAPTER THREE: METHODOLOGY

3.0 INTRODUCTION 55

3.0.1 Profile of the Organization 55

3.0.2 Research Design 63

3.0.3 Assumption 64

3.1 QUALITY CONTROL 64

3.2 ETHICAL ISSUES 65

CHAPTER FOUR: DATA ANALYSIS AND FINDINGS

4.1 INTRODUCTION 66

4.2 PROFILE OF RESPONDENTS 66

4.3 ANALYSIS OF RESPONSES RECEIVED 73

4.4 RESEARCH FINDING 88

4.4.1 Profile of Respondents 88

4.4.2 Analysis of Responses 89

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CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 SUMMARY OF THESIS 95

5.2 CONCLUSION 99

5.3 RECOMMENDATIONS 100

BIBLIOGRAPHY 101

LIST OF TABLES

TABLE DETAILS PAGE

Table 1-1 Performance of CIS in 2008 7

Table 1-2 Collective Investment Schemes in Ghana (2010) 8

Table 1-3 Classification of CIS in Ghana 13

Table 3-1 Population Growth of Ho Municipality 58

Table 3-2 Male-Female Split 59

Table 3-3 Age Structure of Ho Municipality 60

Table 3-4 Breakdown of Health Institutions 62

Table 4-1 Age Profile of Respondents in the Urban Centre 69

Table 4-2 Performance of CIS (Jan, 2005 – Dec, 2008) 74

Table 4-3 A Hypothetical Scenario of Investing GH¢500.00

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 each in Four (4) CIS over Four (4) Years (2005-2008) 76

Table 4-4 Awareness of the Benefits of CIS 77

Table 4-5 Investment Status of Ghanaians 79

Table 4-6 Level of Investment in Investment Products 81

Table 4-7 Medium of Information Communication 83

Table 4-8 Factors Militating Against investment in CIS 86

Table 4-9 Yearly Individual Performance of CIS (2005 – 2008) 90

LIST OF FIGURES

FIGURE DETAILS PAGE

Figure 1-1 Risk Diversification 3

Figure 1-2 Major Market Influences 13

Figure 4-1 Gender Profile of Respondents (Urban) 67

Figure 4-2 Gender Profile of Respondents (Rural) 68

Figure 4-3 Age Profile of Respondents (Rural) 70

Figure 4-4 Educational Profile of Respondents (Rural) 71

Figure 4-5 Educational Profile of Respondents (Urban) 72

Figure 4-6 Performance of CIS (Jan, 2005-Dec, 2008) 75

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Figure 4-7 Awareness of the Benefits of CIS 78

Figure 4-8 Investment Status of Ghanaians 80

Figure 4-9 Level of Investment in Investment Products 82

Figure 4-10 Medium of Information Communication 84

Figure 4-11 Factors Militating Against Investment in CIS 87

Figure 4.12 Yearly Individual Performance of CIS (2005 – 2008) 91

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 CHAPTER ONE

INTRODUCTION

1.0 GENERAL OVERVIEW OF THE STUDY

“Financial literacy is the ability to read, analyze, manage and communicate personal

financial conditions that affect material well being. It includes the ability to discern financial

choices, discuss money and financial issues without (or despite) discomfort, plan for the

future and respond competently to life events that affect everyday financial decisions,

including events in the general economy”. This is a portion of an address read to the

media at the launch of the 2008 Financial Literacy Week in Accra in September, 2008 by

Dr Sam Mensah, Technical Director at the Ministry of Finance and Economic Planning.

A survey conducted by the Ministry of Finance and Economic Planning (MoFEP) has

shown that about 80 per cent of Ghanaian adults do not have any form of financial

services such as savings, loans and insurance investment. The survey further indicated

that even in situations where consumers were aware of such financial services and

products, the knowledge often did not translate into positive investment practice. This may

be because those who heard the information may not have understood the importance of

investment. Was it because the financial jargons were too much for them to assimilate or

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was it because their income levels were too low? Alternatively, could there be other

reasons? These are some of the questions the research study will attempt to answers.

1.0.1 What is Investment?

Investment as defined by Reilly and Brown (2003, p.5) is “the commitment of funds for a

period of time in order to derive future payments that will compensate the investor for (1)

the time the funds are committed, (2) the expected rate of inflation, and (3) the uncertainty

of the future payments”.

The importance of investment is inevitable, as it has been acknowledged in no less a book

than the Holy Bible. Matthew 25:24-26 states:

“… Then another servant came and said, ‘Sir, here is your mina; I have kept it laid away in

a piece of cloth. I was afraid of you because you are a hard man. …” His master replied,

‘Why then didn’t you put my money on deposit, so that when I came back, I could have

collected it with interest’…”

Andries Blake Walters (Master of Commerce, 2008) stated that in order to satisfy the

needs of the investor as enumerated by Reilly and Brown, the investor depends on an

investment vehicle that should amongst other things be able to maximize the investor’s

investable income apportionment, asset class allocation, and risk/return attribution.

14 | P a g e
Andries Blake argued that Collective Investment Schemes (CIS) are such investment

vehicle.

It is important to note that mutual funds/unit trusts like any other investments have varying

levels of risks associated with them. While certain types of funds are low-risk (such as

money market or T-bill funds), others (such as equity and bond funds) can change

significantly in price in response to the ups and downs of the economy, interest rates,

foreign exchange rates, and other economic variables. These fluctuations can cause the

value of your investment to decline. This is known as market risk, and no regulator can

protect you from this. By definition, market risk is any risk that influences a large number of

assets. It is also known as common, systematic, or undiversifiable risk. On the other hand,

any risk or uncertainty that affects at most a small number of assets is referred to as

unsystematic, independent, firm-specific, idiosyncratic, unique, or diversifiable risk. The

formula for total risk of an investment as measured by the standard deviation of its return

can be written as: Total risk = Systematic risk + Unsystematic risk

Figure 1-1 below demonstrates an important point that there is a minimum level of risk that

cannot be eliminated simply by diversifying. This minimum level is labeled

“nondiversifiable risk”. The other part of the risk that can be eliminated by diversification is

marked “diversifiable risk”.

Figure 1-1

Risk Diversification

Average annual
standard deviation
(%)

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Diversifiable
risk
 Nondiversifiable
risk
Number of
stocks in
Source: Essentials of Corporate Finance Sixth portfolio
Edition, Stephen A Rose 2008

Katrina Lamb in her article “Measuring and Managing Investment Risk” defined

investment risk as “deviation from an expected outcome”. She went further to

state that one of the most commonly used absolute risk metrics is standard

deviation, which is a statistical measure of dispersion around a central tendency.

www.investopedia.com/articles/08/risk.asp (March 15, 2010)

The fundamental objective of every investment decision is “return on investment” which is

negatively correlated to “investment risk”. Return on investment (ROI) is a performance

measure used to evaluate the efficiency of an investment or to compare the efficiency of a

number of different investments. To calculate ROI, the benefit (return) of an investment is

divided by the cost of the investment; the result is expressed as a percentage or a ratio.

Return on investment is a very popular metric because of its versatility and simplicity. That

is, if an investment does not have a positive ROI, or if there are other opportunities with a

higher ROI, then the investment should not be undertaken. www.investopedia.com (March

25, 2010)

The Risk-Return Trade-off principle states that; low levels of uncertainty (low risk) are

associated with low potential returns, whereas high levels of uncertainty (high risk) are

16 | P a g e
associated with high potential returns. This simply means that money can render higher

profits only if it is subject to the possibility of being lost. The lesson from the Risk-Return

Trade-off principle is that investment decisions should not be made haphazardly without

recourse to any investment risk management technique. Collective investment schemes

are not immune to the Risk-Return Trade-off principle.

1.0.2 Collective Investment Scheme Evolution

The first collective investment scheme was formed in 1822 by King William the 1st of the

Netherlands. Thereafter an investment trust was launched in 1849 in Switzerland, followed

by another investment trust in Scotland in 1880. This blew over to the United States in the

1890’s. (Andries Blake Walters, 2008)

In Ghana, the Security and Exchange Commission (SEC), a member of the International

Organization of Securities Commissions (IOSCO) was created by the Securities Industry

Law 1993 (PNDCL 333) as a statutory body corporate with primary mission to protect

investors and maintain the integrity of the securities market. As part of its mandate, SEC

formalized the licenses of three (3) collective investment schemes, which had been

operating before the passage of the Unit Trusts and Mutual Funds Regulations, LI1695 in

2001. The three operating schemes were Epack, managed by Data Bank Assets

Management Services; HFC Unit Trust and HFC Real Estate Investment Trust , both

managed by HFC Investment Services Ltd, a subsidiary of HFC Bank Ltd.

By the end of 2003, a total of six (6) collective investment schemes were licensed to

operate, out of these, only the initial three (3) were operational in 2003 with the rest

gearing up to begin operation in 2004. Total value of funds under the management of
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Epack grew by 613% from GH¢10,510.00 in 2002 to GH¢74,990.00 in 2003. Similarly, that

of HFC Unit Trust grew from GH¢45,410.00 in 2002 to GH¢74,540.00 in 2003,

representing an increase of 64%. The fund value of the HFC Real Estate Investment Trust

also increased by 6%, from GH¢14,400.00 to ¢15,390.00 over the same period. These

bring the total net asset value of funds under the management of the three collective

investment scheme operators from GH¢70,410.00 in 2002, to GH¢164,920.00 in 2003, an

increase of 134.2% (Security and Exchange Commission of Ghana, 2003 Annual Report).

2004 saw all the eight (8) collective investment schemes licensed in 2003 up and running.

The total amount of funds mobilized as at the end of 2004 was GH¢386,790.00 and total

net asset value under management grew from GH¢164,920.00 in 2003 to GH¢569,640.00

by the end of 2004, representing a percentage growth of 251.4%. (Security and Exchange

Commission of Ghana, 2004 Annual Report)

In 2006, the total net asset value under the management of nine (9) of the licensed

Collective Investment Schemes in operation amounted to GH¢67,670.00, representing an

increase of 23.0% over that of 2005 (GH¢526,050.00). 51.0%of the outstanding total net

assets recorded for the year were invested in capital market instruments with the

remaining 49% in money market instruments. Total amount of funds mobilized in 2006

was GH¢275,230.00. This represents 40.67% of total net assets of the Collective

Investment Scheme industry as at December, 2006. The total number of share and unit

holders in the Collective Investment industry at the end of 2006 was 71,960 which

included both institutions and individuals. (Security and Exchange Commission of Ghana,

2006 Annual Report)

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By the end of 2008, there were seven (7) Mutual Funds and Four (4) Unit Trust Schemes

operating in the Collective Investment Scheme industry with a total net asset value of GH

¢149,581,990.74. The entire industry made an average return/annualized yield of 25.81%

for investors, compared to 21.30% industry average return in 2007. Table 1-1 below

outlines the performance of the various Collective Investment Schemes in Ghana in 2008:

Table 1-1

Performance of Collective Investment Schemes in 2008

Scheme
Performan
Manager of Net Asset No. of ce
Scheme
MUTUAL FUNDS Value Sharehol (Annualiz
ders ed Yield
(GH¢)
/return
(%)

1 Anidaso Mutual New Gen. 631,666.65 1,081 29.00

Fund Investment. Ser.
Ltd

2 Campus Mutual SDC Brokerage 279,274.70 1,176 31.70

Fund Ltd

3 Databank Balanced Databank Asset 3,465,336.4 4,219 18.30

Fund Mgt. Serv. Ltd 1

4 EPACK Investment Databank Asset 86,541,947. 72,018 -2.66

Fund Mgt. Serv. Ltd 90

5 Fortune Fund SAS Investment 1,749,744.7 1,867 43.00

Mgt. Ltd 5

6 Horizon Fund NTHC Ltd 8,865,243.3 6,364 23.88

9

7 Money Market Fund Databank Asset 17,692,384. 20,137 18.00

Mgt. Serv. Ltd 26

UNIT TRUSTS

1 Gold Fund Gold Coast 3,632,182.6 2,578 37.32

Securities Ltd 6

2 HFC Equity Trust HFC Investment 4,031,030.0 2,414 38.89

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 Services Ltd 2

3 HFC REIT HFC Investment 2,068,051.0 279 28.37

Services Ltd 0

4 HFC Unit Trust HFC Investment 20,625,129. 15,934 18.7

Services Ltd 00

TOTAL 149,581,9 128,067 25.81

90.74

Source: Security and exchange Commission, 2008 Annual Report

The industry has since then provided vast opportunities for small investors to pool

resources to collectively participate in the capital market that hitherto was perceived as the

preserve of the rich and the elites in society. This has been attributed to the continuous

public education campaign mounted by the Security and Exchange Commission (SEC)

which is gradually breaking cultural and psychological barriers to savings and investment

in the country. As at the end of March 2010, there were nine (9) Mutual Funds, and six (6)

Unit Trusts as depicted by Table 1-2:

Table 1-2

Collective Investment Schemes in Ghana as at March, 2010

Fund Fund Manager Fund Type

Epack Investment Fund Databank Asset Management Ltd Mutual Fund
Databank MFUND Databank Asset Management Ltd Mutual Fund
SAS Fortune Fund Strategic African Securities Mutual Fund
Databank Balance Fund Databank Asset Management Ltd Mutual Fund
Campus Mutual Fund Securities Discount Company Mutual Fund
NTHC Horizon Fund NTHC Ltd. Mutual Fund
Anidaso Mutual Fund. New Generation Investment Mutual Fund
Services Ltd
First Fund FirstBanC Financial Services Mutual Fund
iFund Ecobank Development Corporation Mutual Fund
HFC Equity Fund Home Finance Company Unit Trust
HFC Unit Trust Home Finance Company Unit Trust
Real Estate Investment Trust Home Finance Company Unit Trust
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Gold Fund Gold Coast Securities Unit Trust
Capital Growth Fund IC Services Ghana Ltd. Unit Trust
HFC Future Plan Home Finance Company Unit Trust

Source: Self Developed (March, 2010)

A publication by the Security and Exchange Commission of Ghana on their web site

www.secghana.org/publications (March 25, 2010) titled “Getting started with Unit Trusts

& Mutual Funds, what you should know” described Collective Investment Schemes as

“pools of funds that are managed on behalf of investors by a professional money manager.

The manager uses the money to buy stocks, bonds, or other securities according to

specific investment objectives that have been established for the scheme. In return for

putting money into these funds, the investor receives shares or units that represent his/her

pro-rata share of the pool of fund assets. In return for administering the fund and

managing its investment portfolio, the fund manager charges a fee based on the value of

the fund’s assets”. Collective Investment Scheme can either be an Open-ended fund or a

Close-ended fund.

Open-ended fund: Funds which stand ready to repurchase the shares from the holders in

any quantity whenever the holder should desire to sell their shares. In addition, they sell

shares in any quantity to prospective investors at whatever time the investors determine.

In other words, open-ended funds stand ready to issue new shares or redeem outstanding

shares on a continuous basis. The number of shares of the fund therefore fluctuates as

investors purchase or redeems shares. The price of a share in an open-ended fund is

determined by the net asset value per share of the fund, where net asset value per share

refers to the total value of the assets in the fund's portfolio, less any fund liabilities, divided

by the number of shares outstanding.

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Close-ended fund: These funds issue a fixed number of shares and do not stand ready to

repurchase their shares from their shareholders when they decide to sell them. The

Securities Industry (Amendment) Law requires that closed-ended funds be listed on an

organized exchange in order to provide liquidity to the shareholders. These shares are

traded at prices determined by the laws of supply and demand.

Mutual Funds and Unit Trusts are generally categorized according to their investment

objectives and their investment policies. Some funds focus on stocks, others on bonds,

and money market instruments. On the international scene, some funds invest primarily in

their countries, others invest internationally, and some specialize in specific countries.

As reported by the Security and Exchange Commission on their web site

www.secghana.org/investor/cischemes.asp. (March 24, 2010), Collective Investment

Schemes are categorized as;

1. Money Market Funds,

2. Fixed Income Funds,

3. Growth or Equity Funds,

4. Balanced Funds,

5. Global and Foreign Funds,

6. Specialty Funds,

7. Index Funds.

Money Market Funds

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These funds invest in short-term (less than one year to maturity) corporate and

government debt securities such as treasury bills, and corporate notes. Some money

market funds specialize in or invest only in Treasury Bills. These are generally very low

risk funds offering moderate returns.

Fixed Income Funds

These funds invest in debt securities like bonds, debentures, and mortgages that pay

regular interest, or in corporate preferred shares that pay regular dividends. The goal,

typically, is to provide investors a regular income stream with low risk.

Growth or Equity Funds

These are funds which invest primarily in common shares (equities) of local or foreign

companies (if allowed), but may hold other assets as well. The goal is typically long-term

growth through capital appreciation of the assets held. Some growth funds focus on large

companies, while others invest in smaller or riskier companies. Performance will be

affected by the success or failure of specific investments and by the performance of the

stock markets.

Balanced Funds

These are funds that invest in a balanced portfolio of equities, long-term debt securities

and money market instruments with the objective of providing reasonable returns with

moderate risk.

Global and Foreign Funds

These are funds that may be fixed income, growth, or balanced funds that invest in foreign

securities. These funds can offer investors international diversification and exposure to
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foreign companies, but are subject to risk associated with investing in foreign countries

and foreign currencies.

Specialty Funds

These funds invest primarily in a specific geographical area (e.g. Africa) or in a specific

industry (e.g. high-technology companies). As a result, specialty funds are subject to a

certain risk-level related to the market in which it specializes. Types of risks specialty

funds face include foreign exchange, political, geographical or sectorial (industry) risk.

Index Funds

These are funds that invest in a portfolio of securities selected to represent a specified

target index or benchmark, such as the GSE All-Share Index and Databank Stock Index.

The associated risk is directly related to the risk of the market that the index is measuring,

such as the stock market.

Collective Investment Schemes generally invest on the Stock Exchange. Due to this, they

are affected by major market influences such as global market conditions like price of

crude oil, political environment, macro economic variables, international economics, and

news about companies listed on the Stock Exchange. The figure below buttresses this

point.

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 Figure 1-2
Major Market Influences

Global Political Commodity

Market Environment Price

Unsystematic Influences
Systematic Influences
Major Market Influences

Macro Companies’ International

Economic Profit Economics
Factors
Source: Self Developed (March, 2010)

In Ghana, Collective Investment Schemes are categorized into four (4) main groups

namely; Money Market Fund, growth or Equity Funds, Balance Funds and Specialty Fund.

The table below is used to buttress this point:

Table 1-3

Classification of Collective Investment Scheme in Ghana

MONEY MARKET EQUITY FUNDS BALANCE FUNDS SPECIALTY

FUNDS FUNDS

1. Databank
1. Gold Fund 1. Compus 1. HFC Reit
Mutual Fund
2. SAS Furture Mutual Fund
2. HFC Unit Trusts
Fund 2. Databank
3. First Fund
3. Horizon Fund Balance Fund
4. Anidaso Fund 3. HFC Future
5. Epack Plan
6. HFC Equity 4. iFund
Fund
7. Capital Growth
Source: Self Developed (March,
Fund2010)

1.0.3 Protection of Collective Investment Scheme Investors

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To protect the interest of Collective Investment Scheme investors, the Security Industry

Law 1993 (PNDC Law 333) was amended. The new law, the Securities Industry

(Amendment) Act, 2000 Act 590 was passed to make fuller provisions for the operation

and regulation of unit trust and mutual fund; to provide for the settlement of disputes

arising under the Law; to revise penalties in the Law; to provide for consequential

amendments arising from the Constitution and to provide for related purposes. (The

Security Industry (Amendment) Act, 2000 Act 590 assented on 19th December, 2000)

The Act provides that, a company seeking to establish a fund shall appoint a manager of

the fund and the manager must be a company incorporated in Ghana and independent of

the fund company. The manager shall appoint a custodian or a trustee for the fund but the

manager and the custodian or the trustee shall be independent of each other. The

custodian or the trustee must be independent of the fund company and be a bank, an

insurance company or any other financial institution approved by the Commission or a

wholly owned subsidiary of any of them approved by the Commission.

All securities in Ghana are subject to the provisions of the Securities Industry

(Amendment) Act, 2000 Act 590 that is administered and enforced by the Securities and

Exchange Commission (SEC). The Act regulates Collective Investment Schemes in four

basic ways:

1. Through Registration Requirements

2. Through Prospectus Requirements

3. Through Regulations on Fund Operations and Sales Conduct

4. Through Surveillance and Monitoring

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Through Registration Requirements

Every person who establishes a scheme or manages the investment portfolio of a scheme

must be licensed by the Commission. Those who sell the shares/units are registered as

dealers. Those who make investment decisions for Collective Investment Schemes are

registered as advisers. The registration requirements enable the Commission to ensure

that each operator, dealer, or adviser has the basic qualifications required to act on behalf

of investors. Registration is a continuous process, and thus subject to periodic renewal in

order to ascertain the continued suitability of registrants.

Through Prospectus Requirements

Every scheme that intends to sell securities to the public must first file a prospectus with

the Commission and must give a summary disclosure document to each purchaser. The

information contained in these documents is intended to allow investors and their financial

advisers to make prudent and informed investment decisions. The mutual fund company

or the unit trust manager is accountable under the law for the statements made in the

prospectus. Once a fund has filed a prospectus it is also obliged to provide investors with

financial statements and other important information on a regular basis.

Through Regulations on Fund Operations and Sales Conduct

The Securities and Exchange Commission has also established regulations that govern

investment and marketing practices, the way in which fund assets must be held and the

types of incentives that can be paid to those who manage or sell the funds. Many dealers

who will sell shares/units of funds will also be members of the Ghana Stock Exchange

27 | P a g e
(GSE) which is the industry's Self-Regulatory Organization (SRO) and both they and their

employees are subject to the rules, by-laws and policies that are established by the GSE.

Through Surveillance and Monitoring

The Commission controls and supervises the activities of registrants in Collective

Investment Schemes with a view of ensuring that they maintain proper standards of

conduct and acceptable practices. Licensed operators are obliged to submit financial and

operational reports periodically to the Commission. These reports are reviewed alongside

set standards and criteria to ensure that licensed operators continue to remain compliant

over the period of operation and not only at the time of first application of

license/registration or at the time of renewal of their license/registration.

http://www.secghana.org/investor/cischemes.asp, (25 March, 2010)

1.0.4 Advantages of Collective Investment Schemes

Most Collective Investment Schemes offer the following advantages to investors as

published on www.secghana.org/investor/cischemes.asp (25 March, 2010);

Diversification, Affordability, Professional Management, Liquidity, Flexibility, Performance

Monitoring.

• Diversification

Investing in a number of different securities helps reduce the risk of investing. When

the investor buys a share/unit in a fund, he/she buys an interest in a portfolio of

dozens of different securities, giving him/her instant diversification, at least within the

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type of securities held by the fund. A portfolio made up of shares from various

companies is a good example of diversification.

• Affordability

With many funds, the investor can begin buying shares/units with a relatively small

amount of money (e.g. about GH¢2.00 for the initial purchase). Some funds allow

investors to buy more shares on a regular basis with even smaller monthly

installments.

• Professional Management

Mutual funds/Unit trusts are managed by professionals who are experienced in

investing money and who have the skills and resources to research many different

investment opportunities. Investors in these funds, therefore, get access to the

professional management of their funds.

• Liquidity

Shares of open-end funds can be redeemed at any time at the Net Asset Value Per

Share (NAVPS) of the fund.

• Flexibility

Many fund management companies administer several different funds. (e.g. money

market, fixed-income, growth, balanced and international funds) and allow the

investor to switch between funds within their ‘fund family’ at little or no charge.

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 • Performance Monitoring

The Net Asset Value Per Share (NAVPS) or the bid and offer prices of open ended

funds are reported in the press and on many internet sites as pertains in many

money markets, allowing the investor to continually monitor the performance of

his/her investment.

1.0.5 Disadvantages of Collective Investment Schemes

Victor Ogiemwonyi, the Managing Director of Partnership Investment Company Ltd,

Nigeria stated the following as some of the disadvantages of Collective Investment

Schemes:

• Costs

The fund manager’s remuneration is often taken directly from the fund assets as a fixed

percentage each year or sometimes a variable (performance based) fee. If investors

managed their own investments, this cost would be avoided.

• Lack of Choice

The investor can choose the type of fund to invest in but have no control over the choice of

individual holdings that make up the fund.

• Loss of owner's rights

Shareholders' perks and the right to attend the annual general meetings of companies in

which their funds had been invested by the fund managers and vote on important matters

are taken away from them by the fund managers.

1.1 PROBLEM STATEMENT

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Recommendation 98 of The Financial Sector Strategic Plan of Ghana (FINSSP) requires

the Regulatory Agencies such as the Security and Exchange Commission (SEC) and the

Ministry of Finance to launch an annual Financial Literacy Week. This is in co-operation

with industry associations and financial institutions to raise the awareness of the range of

products and services available to consumers to help them better understand and manage

their finances. At the launch of the first Financial Literacy Week celebration in Accra in

September 2008, Dr Sam Mensah, Technical Director at the Ministry of Finance and

Economic Planning said “as Ghana’s financial system becomes increasingly complex,

there is a mounting concern that the burden of understanding and managing the details of

financial products and services will be too much for most Ghanaians, especially the low-

income and rural segments of the population”.

Dr Mensah further noted that, even in more financially developed markets, research has

shown that a large percentage of people of all ages, incomes and education levels lack the

basic financial knowledge and skills to ensure long-term stability for themselves and their

families, and to drive the savings-investment requirements of the economy.

The Collective Investment Scheme industry in Ghana is gaining recognition due to the

remarkable value they had added to investor’s capital as discussed earlier. However, most

Ghanaians cannot participate in this remarkable performance of Collective Investment

Schemes due to the following:

1. High illiteracy level of Ghanaians especially the rural duelers,

2. The investment information available are full of financial jargons that are beyond the

comprehension of the average Ghanaian,

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 3. The investment information are limited to very few category of people living in the

urban centers who have access to the media ,

4. Low income levels of most Ghanaians leading to low marginal propensity to save.

1.2 PURPOSE OF THE STUDY

Despite the effort of Government to increase the financial literacy level of Ghanaians by

instituting the celebration of the Financial Literacy Week, it has been realised that in

Ghana, less than 20% of households benefit from access to formal financial services such

as savings, loans, insurance, and investment. A survey conducted in 2009 by the United

States Agency for International Development (USAID), Trade and Investment Programme

for a Competitive Export Economy (TIPCEE), and the Ministry of Finance and Economic

Planning (MoFEP) has revealed that the level of knowledge about financial institutions,

their services, and products among urban and rural Ghanaian adults is low and that even

when consumers are knowledgeable, knowledge often does not translate into behavioural

change. This was contained in a speech delivered by Hon. Seth Terkper, Deputy Minister

of Finance and Economic Planning at the pre-conference of “Making Finance Work for

Ghana (MFW4G)” on September 7, 2009.

The keynote address delivered by His Excellency John Mahama, Vice President of the

Republic of Ghana at the opening of the 2009 Financial Literacy Week celebration on

September 28, 2009 supported this assertion. The address stated that in 2006 and 2009,

the Ministry of Finance and Economic Planning sponsored two nationwide surveys to

confirm the status of financial literacy among urban and rural adults. The main aims were

to:

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 1. Determine the extent to which personal financial literacy diverges among urban and

rural adults;

2. Determine why some adults in these two groups are more knowledgeable than

others; and

3. Examine how an individual's knowledge influences his or her opinions and

decisions on personal financial issues.

The address noted further that “while the financial sector at home keeps expanding, the

surveys revealed several gaps in knowledge of financial issues, institutions and products

among Ghanaians. One particular element is the poor awareness among young people in

the 18 to 30 age-bracket”.

The purpose of the study was to conduct a performance comparative analysis between

Collective Investment Schemes in Ghana to determine the value that had been added to

investor’s capital, determine the financial literacy status of Ghanaians, exposed a lot of

information regarding the operations of Collective Investment Schemes, and to contribute

towards the attainment of government’s goals regarding financial literacy among

Ghanaians.

1.2.1 Research Questions

I. How did the following Collective Investment Schemes that were fully operational

between January, 2005 and December, 2008 performed?

 Epack operated by Databank Assets Management Ltd.

 Gold Fund operated by Gold Coast Securities Ltd.

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  Mfund operated by Databank Assets Management Ltd.

 Fortune Fund operated by Strategic African Securities.

II. What is the financial literacy status of Ghanaians both in the urban and rural areas

regarding Collective Investment Schemes?

III. Do people with regular income invest part of their income?

IV. What investment vehicle do people with regular income invest?

V. What medium of communication informed people most about Collective Investment

Schemes?

VI. What are the factors militating against regular investment in Collective Investment

Schemes (CIS)?

1.2.2 Specific Objectives of the Study

The specific objectives of the study were:

i. To conduct a performance comparative analysis for four (4) CIS that were licensed

by the SEC to operate between January, 2005 and December, 2008 (4 years) to

determine the veracity of the success stories of these CIS. This is because most of

the collective investment schemes were launched within 2004 – 2008.

ii. To research into the level of financial literacy of Ghanaians with reference to CIS.

iii. To expose enough comprehensible information on the operations of CIS.

iv. To contribute towards government’s efforts in increasing the financial literacy level

of Ghanaians.

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1.3 RATIONALE OF THE STUDY

The study had been necessitated by the realization that apart from Ghana’s Financial

Sector Strategic Plan (FINSSP) which has given recognition to the need to improve the

financial literacy of Ghanaians in order to accelerate savings and investment culture in the

country, the Government of Ghana and her development partners have also identified

financial literacy as an area that can help strengthen individuals, households and nations.

It is expected that this research material would serve as a resourceful literature for the

emerging Collective Investment Scheme industry in Ghana, had exposed enough

comprehensible investment information on the benefits of Collective Investment Schemes

to the benefit of the investing public and also, contributed towards the achievement of the

financial literacy target of government.

1.4 LITERATURE REVIEW

The research reviewed relevant existing literature on the nature, concept, and regulations

governing Collective Investment Schemes in general and Ghana in particular.

1.5. RESEARCH DESIGN

Chapter one concentrated on definition of financial literacy, investment and Collective

Investment Schemes. It also touched on the evolution, importance and regulation of

Collective Investment Schemes in Ghana as well as how collective investment investors

are projected. The chapter further stated the problem statement, purpose of the study,

rationale of the study, research methodology, scope of the study and anticipated research

limitations.

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Chapter two had been dedicated to a critical review of relevant existing literature on

financial literacy, Collective Investment Schemes, their nature, concept, and regulations

governing their operations.

Chapter three described how the research had been undertaken, including the theoretical

and philosophical assumptions upon which the research is based and the implications of

these for the methods adopted in sample selection and size, data collection and

instrumentation. Issues on quality control and ethical requirements had also been

addressed in this chapter.

Chapter four analyzed with tables, diagrams and statistical analytical tools all data

collected stating detailed findings.

Chapter five drew conclusion on the findings and summarized the results.

Recommendations for prudent investment practices and for promoting financial literacy

were made.

1.5.1 Data Collection Technique

Actual performance figures of four (4) CIS out of the eight (8) that were licensed by the

SEC in 2004 and were fully operational in 2005 were collected from Gold Coast Securities

Limited (managers of Gold Fund) and used to conduct a comparative analysis. The

Internet and the World Wide Web served as additional source of secondary data. To also

ascertain the literacy level of Ghanaians regarding collective investment schemes,

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interview questionnaires were developed and administered by two (2) trained National

Service Personnel to collect primary data. In administering the questionnaires, an assured

ethical clearance was sought from all respondents before data collection commenced in

order to assure respondents’ confidentiality.

1.5.2 Sample Size

To determine the financial literacy level of Ghanaians regarding CIS, a total of 200 people

out of a population of 200,000 living within the Ho Municipality as per the 2000 Population

and Housing Census were sampled. Out of the 200 sampled units, 100 were from the rural

areas and the rest 100 from the urban centre. All these were to ensure a free and fare

inference of the research findings.

1.5.4 Sample Technique

Simple random sampling technique was used to sample 200 people in the Ho Municipality.

1.6 SCOPE OF THE STUDY

The Ho Municipality was used as the case study area. It is one of the eighteen (18) local

authorities in the Volta Region of Ghana with a total population of 200,000 made up of

73,893 representing 37% as urban duelers and 126,107 representing 63% for the rural

population as per the 2000 Population and Housing Census.

The Municipality is located between Latitudes 6° 20”N and 6° 55”N and Longitudes 0°

12”E and 0° 53” E and covers an area of 2.660 sq km. The Municipality shares boundaries

with the Adaklu-Anyigbe District to the South, Hohoe Municipal to the North, South-Dayi

37 | P a g e
District to the West and the Republic of Togo to the East. The Ho Municipality is also

home to the regional capital of the Volta Region

1.7 RESEARCH LIMITATIONS

The following limitations were encountered:

i. Some respondents were not willing to give out important information for the study.

They were of the view that issues concerning their investment are their private

business and would not want to make it public.

ii. The instituted bureaucratic system at various offices hindered secondary data

collection. This resulted into not being able to lay hands on all the relevant

secondary data.

iii. Some stakeholders were not willing to grant interviews.

iv. Some respondents did not give very accurate information.

v. Inadequate funds and the need to complete the project within a specified time

frame hindered the desire to cover the entire municipality.

vi. The research study was completed and submitted in July, 2010, a shot period for a

very comprehensive analysis.

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 CHAPTER TWO

LITERATURE REVIEW

2.1 INTRODUCTION

To understand the operations of Collective Investment Schemes, one needs to first of all

understand the basic underlying elements that made Collective Investment Schemes

viable investment vehicles. This chapter starts off with a theoretical background of

investment, the need for financial literacy and thereafter, a discussion on the theory of

Collective Investment Schemes. The various regulatory frameworks instituted to regulate

fund managers and to protect investors are also discussed. The chapter then ended with

the impact of the emergence of Collective Investment Schemes in the United States of

America, Ghana, South Africa and Nigeria due to time constrains.

2.2 THE THEORY OF INVESTMENT

The theory of investment has been with us since the days of the Bible. Matthew 25:14-

27 (New International Version) under the title “The Parable of the Talents” stated that “A

man going on a journey called his servants and entrusted his property to them. To one he

gave five talents of money, to another two talents, and to another one talent, each

according to his ability. Then he went on his journey. The man who had received the five

talents went at once, put his money to work, and gained five more. So also, the one with

39 | P a g e
the two talents gained two more. However, the man who had received the one talent went

off dug a hole in the ground and hid his master's money.

After a long time the master of those servants returned and settled accounts with them.

The man who had received the five talents brought the other five. 'Master,' he said, 'you

entrusted me with five talents. See, I have gained five more.'

His master replied, 'Well done, good and faithful servant! You have been faithful with a few

things; I will put you in charge of many things. Come and share your master's happiness!'

The man with the two talents also came. 'Master,' he said, 'you entrusted me with two

talents; see I have gained two more.

His master replied, well-done, good and faithful servant! You have been faithful with a few

things; I will put you in charge of many things. Come and share your master's happiness!

Then the man who had received the one talent came. 'Master,' he said, 'I knew that you

are a hard man, harvesting where you have not sown and gathering where you have not

scattered seed. So I was afraid and went out and hid your talent in the ground. See, here

is what belongs to you.'

His master replied, 'you wicked, lazy servant! So you knew that I harvest where I have not

sown and gather where I have not scattered seed? Well then, you should have put my

money on deposit with the bankers, so that when I returned I would have received it back

with interest”.

The Bible approves of investment as a prudent decision one can take because the

possibility of earning an interest on your investment is very high if the right investment

40 | P a g e
decisions are made. Those who are scared of investment risk should save their money

with the bank, if not for anything, for safekeeping and interest. The Bible disagrees with

keeping money in the house.

2.2.1 Definition of Investment

As published on http://www.freedownloadbooks.net/aafm-doc.html (April 27, 2010)

under the heading “It is a common phenomena nowadays to find investors looking

beyond…”, investment has been defined as the commitment of funds to one or more

assets that will be held over some future time period for return that is commensurate with

risk. The field of investments, therefore, involves the study of the investment process.

Investment is concerned with the management of an investor’s wealth, which is the sum of

current income and the present value of all future income.

The writer went further to state that there are two (2) main forms of investments; 1) Direct

Investment which involves an investor investing directly in financial assets in return for

dividends and / or interest and capital gains. In this case, the financial assets are owned

directly by the investor. 2) Indirect Investment involves buying and selling financial assets

through an investment company. Investors who purchase shares of a particular portfolio

managed by an investment company are purchasing an ownership interest in that portfolio

of securities and are entitled to a pro rata share of the dividends, interest, and capital

gains generated. Shareholders also pay a pro rata share of the company’s expenses and

its management fee, which are deducted from the portfolio’s earnings as it flows back to

the shareholders. Collective Investment Schemes fall under indirect investment.

2.3 THE CONCEPT OF FINANCIAL LITERACY

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In its 2009 budget, the Government of Canada announced its intention to establish a

national task force dedicated to the issue of financial literacy. The Government in June,

2009 appointed a 13 member committee chaired by Donald A. Stewart to form a Task

Force on Financial Literacy. In their report published in February, 2010 titled “Leveraging

Excellence, Charting a course of action to strengthen financial literacy in Canada” the

Task Force reported that before beginning its mandate, they agreed on a common

meaning for the term “financial literacy” to guide its efforts and discussions with

Canadians. They looked at various definitions and terms that existed, and decided to

blend the key ideas into the following broad definition: “Financial literacy means having the

knowledge, skills and confidence to make responsible financial decisions”.

The Task Force went further to summarize the various parts of the definition for financial

literacy as follows:

1) “Knowledge” means understanding personal and broader financial matters.

2) “Skills” the ability to apply that knowledge in everyday life.

3) “Confidence” feeling self-assured enough to make important decisions. This is

often a key factor in galvanizing people into action.

4) Responsible financial decisions”, meaning people will be able to use the

knowledge, skills and confidence they have gained to make choices that are

appropriate to their own circumstances.

S.E. Smith stated that (www.wisegeek.com/what-is-financial-literacy.htm July, 2010)

“financial literacy is the understanding of money and financial products that people can

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apply to financial choices in order to make informed decisions about how to handle their

finances”.

Dr Sam Mensah, Technical Director at the Ministry of Finance and Economic Planning,

said in 2008 at the launch of the 2008 Financial Literacy Week celebration in Accra that

financial literacy is “the ability to read, analyze, manage and communicate personal

financial conditions that affect material well being”. Financial literacy he said includes the

ability to discern financial choices, discuss money and financial issues without (or despite)

discomfort, plan for the future and respond competently to life events that affect everyday

financial decisions, including events in the general economy.

Schagen and Lines (1996) in a report to the National Foundation for Educational Research

in the United Kingdom as quoted by Dr Sam Mensah defined financial literacy as “the

ability to make informed judgments and to take effective decisions regarding the use and

management of money.”

The financially-literate should not only have the ability to understand key concepts in

money management, a working knowledge of financial institutions, systems and services

and a range of analytical skills, but also possess a facilitating attitude to the effective and

responsible management of financial affairs.

Benefits of Financial Literacy

Alan Greenspan (2002) stated that financial literacy helps to inculcate in individuals the

financial knowledge necessary to create household budget, initiate savings plan, and

make strategic investment decisions. He further explained that such financial planning can

help families meet their short term obligations and maximize their long term well being.

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M. Cohen & J Sebstad (2003) explained that “broadly speaking, the purpose of financial

education is to:

1) Teach people concepts of money and how to manage it wisely;

2) Enable people to become more informed in financial decision making, develop

awareness of personal financial issues and choices;

3) Learn basic skills related to earning, spending, budgeting, saving, borrowing, and

investing money;

4) Help people set financial goals and optimize their financial options; and

5) Help people manage cash flow, build assets, manage risks, and plan ahead for the

future.

Ernest Senyo Dzandu (2009) noted that the importance of financial literacy cannot be

overemphasized. Many reasons can be given to support the importance of financial

literacy in Ghana. He stated that issues of financial literacy are assuming great importance

in Ghana for a number of reasons. Some of the reasons are;

1) The individual Ghanaian is getting exposed to multiplicity of financial service

providers with number of financial products and services,

2) The growing personal indebtedness and the continuous decline in government

resources.

Mr. Dzandu advised that due to the emergence of fraudsters disguising themselves as

financial service providers promising unrealistic returns on investment and end up

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defrauding unsuspected individuals, Ghanaians need to possess the ability to understand,

analyze and manage their financial well being.

Masahudu Ankiilu Kunateh stated in the Ghanaian Chronicle published on Thursday, 20th

August 2009 that a survey, undertaken by the United States Agency for International

Development (USAID), the Trade and Investment Programme for a Competitive Export

Economy (TIPCEE), and the Ministry of Finance and Economic Planning (MoFEP) has

revealed that, adults in Northern Ghana have the lowest financial literacy in the country.

According to the survey, the national mean score of the country in 2008 was 44%,

compared with 57% as the score for the 2007 Urban Financial Literacy Survey.

The research considered the southern belt to comprise the Eastern, Volta, Western,

Greater Accra and Central regions, the middle belt involving the Brong Ahafo and Ashanti

regions, and the Northern belt involving Upper East and Upper West regions. The

research findings indicated a returned total financial knowledge scores of 51, 44 and 38%

respectively, establishing the northern belt as the least financial knowledgeable belt in

Ghana.

The study was conducted by CDC Consult Ltd., with the specific objectives of providing

evidence of the extent of personal financial literacy among rural adults, examining why

some rural adults were relatively more knowledgeable than others, and finding out how an

individual's knowledge influences his/her opinions and decisions on personal financial

issues.

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Presenting the findings of the second baseline survey on Rural Financial Literacy at a

stakeholders' forum in Accra on August 19, 2009, the Team Leader of the CDC Consult

Limited, Mr. Ernest Dzandu, further revealed that on general basic financial knowledge,

the southern, middle and northern belts returned mean scores of 63, 57 and 51%

respectively.

Two regions in each of the three geographical belts were selected, and the selection was

based on the regions with the highest rural population, except the middle belt, which has

two regions. Mr. Dzandu indicated that in the southern belt, a total of 630 people were

sampled, whilst 354 and 316 were also sampled in the middle and northern belts

respectively. In all, a total of 1,303 rural adults, aged 18 years and above, were

interviewed through face-to-face interactions with a structured questionnaire as the main

instrument.

Touching on knowledge of financial institutions, services and products, he astonishingly

disclosed that a number of people interviewed, recorded a mean score of 0.45 on a scale

of zero to one, saying, “Commercial and rural banks are the well known financial

institutions, with respective awareness proportions of 47% and 29%.”

Mr. Dzandu intimated that the well-known banking services and products known among

adults in rural Ghana, included money transfer, savings and current accounts,

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representing 74, 37 and 31% accordingly. He added that the middle, southern and

northern belts returned financial institutions, services, and products, scores of 53, 45, and

37% respectively. The results underline the disparity between the availability of financial

institutions, services, and products in the northern belt, compared with the other belts.

Mr. Dzandu in his recommendation stated that, “There is the need to attach importance to

rural financial literacy, especially with the ongoing changes on the financial landscape,

further shrinking of small businesses, and the emergence of alternative financial service

providers, including fraudsters, who bolt away with meager savings of their “clients”.

Another research conducted by Edward AI-Hussainy (2008) buttress this point by stating

that access to financial services is increasingly recognized as critically important to

understand the micro foundations of economic development. However, data on financial

services remains very scarce.

2.4 THE THEORY OF COLLECTIVE INVESTMENT SCHEME

The first closed-end investment company was formed in 1822 by King William the 1st of the

Netherlands. Thereafter an investment trust was launched in 1849 in Switzerland, followed

by another investment trust in Scotland in 1880. This blew over to the United States in the

1890’s. The first open-ended mutual fund was the Massachusetts Investor’s trust

established in Boston in 1924 (Andries Blake Walters, Master of Commerce-2008)

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M.M. Ibrahim (2005) reported that, Mutual Funds or Unit/Investment Trusts as they are

known in different jurisdictions are financial intermediaries that pool the resources of many

small investors by selling shares to them and use the proceeds to buy securities of quoted

firms. Through the asset transformation process of issuing shares in small denominations

and buying large blocks of securities, mutual funds can take advantage of volume

discounts on brokerage commissions and purchase diversified holdings (Portfolio) of

securities. This allows the small investor to obtain the benefits of lower transactions costs

in purchasing securities as well as the reduction of risk by diversifying the portfolio of

securities held.

Andries Blake Walters (2008) also reported that a Collective Investment Scheme is a

regulated pooled investment fund where the underlying investors own units in a shared

portfolio. He noted that collective investments have become a very popular investment

vehicle in South Africa because it is, among other things, transparent, liquid and easily

accessible. He went further to state that the growing investor knowledge, good market

returns and suitability for automatic diversification which minimizes risk also contribute to

the popularity of collective investment schemes. Blake was emphatic that in South Africa,

the Collective Investment Schemes Control Act (CISCA) of 2002 defined collective

investment scheme as:

A scheme in whatever form, including open-ended investment company, in pursuance of

which members of the public are invited or permitted to invest money or other assets in a

portfolio, and in terms of which –

(a) two or more investors contribute money or other assets to and hold a

participatory interest in a portfolio of the scheme through share, units

or any other form of participatory interest; and

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 (b) the investors share the risk and the benefit of investment in

proportion to their participatory interest in a portfolio of a share or on

any other basis determined in the deed, but not a collective

investment scheme authorized by any other Act.

2.5 REGULATION OF COLLECTIVE INVESTMENT SCHEME

It is the ultimate responsibility of every state to institute legal structures to regulate

business and investment activities. A consultation report by the Technical Committee of

the International Organization of Securities Commissions on the topic “Examination of

Governance for Collective Investment Schemes” published in February, 2005 stated that

the goal of investor protection relates to, among other things, the prevention of misleading,

manipulative and fraudulent practices. It is also related to the prevention of loss due to

malfeasance or negligence on the part of those that organize and operate the CIS. The

general goal is not to protect investors from suffering any market-driven loss, but rather to

enable investors to understand the risks that pertain to investments in specific CIS.

In Ghana, Stephen Asante Biney (2006) stated that Ghana derived its corporate

governance regulations from the Ghana Companies code of 1963, Ghana Stock Exchange

Listing Regulations (GSE, 1993), Security Industry Law of 1993, (PNDC LAW, 333),

amended in 2000 (Security and Exchange Commission, 2000) and finally the code of

accounting ethics imposed by the Ghana Institute of Chartered Accountants on

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disclosures that meet international standards. The Security Industry Law was amended to

accommodate the operations of mutual funds and unit trusts in Ghana.

2.5.1 What are the Licensing Requirements for Operating CIS?

In Ghana, for mutual fund to qualify for licensing, the first step is the incorporation of a

Mutual Fund Company under the Companies Code 1963 (Act 197) as a public limited

liability company with the sole aim of holding and managing portfolio of securities and

other financial assets. After the incorporation of the company, an application is made by

the company to the Security and Exchange Commission for a license to operate the fund.

The Commission requires the following documents to be submitted to it for its review for

the issue of a license to operate a mutual fund:

i. Company Regulation

ii. Management Agreement

iii. Custodial Agreement

iv. Prospectus (offering document)

In terms of unit trust, an application must be made to the Securities and Exchange

Commission (SEC) by a company licensed by the Commission as an investment adviser

for a license to establish a unit trust. The SEC requires the following documents to be

submitted to it for its review for the issue of a license to operate a unit trust:

i. Management Agreement

ii. Trust Deed

iii. Prospectus (offering document)

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It is also stated that all securities in Ghana are subject to securities laws that are

administered and enforced by the Securities and Exchange Commission (SEC). The

securities laws regulate Collective Investment Schemes in four basic ways. Through:

1) Licensing Requirements,

2) Prospectus Requirements,

3) Regulations on Fund Operations and Sales Conduct,

4) Surveillance and Monitoring. www.secghana.org/investor/cischemes.asp (April,

2010).

Through Licensing Requirements

Every person who establishes a scheme or manages the investment portfolio of a scheme

must be registered (licensed) by the Commission. Those who sell the shares/units are

registered as dealers. Those who make investment decisions for collective investment

schemes are registered as advisers. The registration requirements enable the

Commission to ensure that each operator, dealer, or adviser has the basic qualifications

required to act on behalf of investors. Registration is a continuous process, and thus

subject to periodic renewal in order to ascertain the continued suitability of registrants.

Through Prospectus Requirements

Every scheme that intends to sell securities to the public must first file a prospectus with

the Commission and must give a summary disclosure document to each purchaser. The

information contained in these documents is intended to allow investors and their financial

advisers to make prudent and informed investment decisions. The mutual fund company

or the unit trust manager is accountable under the law for the statements made in the

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prospectus. Once a fund has filed a prospectus it is also obliged to provide investors with

financial statements and other important information on a regular basis.

Through Regulations on Fund Operations and Sales Conduct

The Securities and Exchange Commission has also established regulations that govern

investment and marketing practices, the way in which fund assets must be held and the

types of incentives that can be paid to those who manage or sell the funds. Many dealers

who will sell shares/units of funds will also be members of the Ghana Stock Exchange

(GSE) which is the industry's Self-Regulatory Organization (SRO) and both they and their

employees are subject to the rules, by-laws and policies that are established by the GSE.

Through Surveillance and Monitoring

The Commission controls and supervises the activities of registrants in collective

investment schemes with a view of ensuring that they maintain proper standards of

conduct and acceptable practices. Licensed operators are obliged to submit financial and

operational reports periodically to the Commission. These reports are reviewed alongside

set standards and criteria to ensure that licensed operators continue to remain compliant

over the period of operation and not only at the time of first application of

license/registration or at the time of renewal of their license/registration.

In Nigeria as reported by M.M. Ibrahim (2005), Section 8(g) of the Investments and

Securities Act No.45 of 1999 empower the Securities and Exchange Commission (SEC) to

among other functions, register and regulate the workings of all collective Investment

Schemes. The rules and regulations emanating from this Act deals with the following

important matters:

i. Registration of CIS and its management.

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 ii. Investments by the CIS and the prudential norms.

iii. Transparencies in operations and disclosure requirements.

iv. Investor protection.

Registration of Mutual Fund and its Management

The Mutual funds have to be registered as a trust or a trust company in accordance with

the provisions of the Trustees Act, Investment and Securities Act and the Companies and

Allied Matters Act 1990 as amended. The assets of the mutual funds have to be managed

by an Asset Management Company (AMC) registered under the companies Act. The

responsibilities of the AMC include managing the mutual fund and its investments in

accordance with SEC’s regulations.

Investments by the Mutual Funds- (Prudential Norms)

Although the mutual fund is free to formulate its own Investment strategies for the money

raised, it is however bound by certain regulations as to the investments of such funds.

Some of these regulations include:

i. Fund managers are prohibited from investing in in-house instruments or those of

trustees and their associates investments;

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 ii. Provision that promoters of the scheme shall subscribe to a minimum of 10% of

their initial issue; and

iii. Restrictions of investments in money market instruments etc.

Transparencies in Operations and Disclosure Requirements

The Asset Management Company (AMC) is expected to:

i. Properly evaluate the net asset values and periodically declare them for the

information of the public;

ii. Comply with the method of valuation of securities adopted in accordance with the

regulations; and

iii. Limit the expenses for floating a scheme and also for managing the assets in

accordance with the regulations.

Mr. Ibrahim went further to state that the AMC is eligible for an annual service charge

under SEC’s Rule 247 (j) and (k) not exceeding 5% of the Investment corpus or fund, but

payable out of income. It is also entitled to an initial charge (as appropriate) not exceeding

2.5% of any amount invested in the scheme as part of the purchase price. In addition, the

manager is also entitled to an incentive fee of 1% of total returns in excess of 20% of the

scheme’s net asset value.

Investor Protection

With respect to investor protection, the collective investment schemes are bound by a

code of conduct as regards their advertisements. This is to ensure that unfounded claims

are not made by the fund managers to attract investments. Fund managers are also
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expected to file monthly returns in an acceptable format signed by their sponsoring

individuals to enable a regular off-site surveillance of the Schemes with a view to provide

an early warning system. The publication of audited accounts every year along with

disclosures of investments in instruments, inspection and audit by SEC, besides valuation

of the assets are some of the features of investor protection.

It is important to remember that collective investment schemes like any other investments

have varying levels of risks associated with them. While certain types of funds are low-risk

(such as money market or T-bill funds), others (such as equity and bond funds) can

change significantly in price in response to the ups and downs of the economy, interest

rates, foreign exchange rates, and other economic variables. These fluctuations can cause

the value of your investment to decline, particularly over the short term. This is known as

market risk, and no regulator can protect you from this. However, regulations have been

established to help ensure that the money you invest in these funds is handled carefully

and professionally. For example, the CIS assets must be held separately by a

custodian/trustee. Again an independent auditor reviews and reports on the finances and

practices of the funds each year. The dealers who handle CIS transactions for clients are

also subject to detailed rules governing their conduct to ensure that clients are dealt with

fairly and honestly.

Candice Paine, Head of Retail at Sanlam Investment Management (SIM) South Africa

stated that in light of the latest scandal to hit the global financial industry, the alleged

$50bn hedge fund defrauded by Bernard Madoff in the US, investors may be wondering

how safe their money really is. She reassured investors that consumer protection is of

utmost importance in the South African Collective Investment Schemes industry, with
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structures and gatekeepers firmly in place, as well as vigilant media and financial

professionals who act as watchdogs to the industry.

The litany of disasters, from simple poor investment management to outright fraud, seems

to keep growing with 100-year-old institutions failing, others begging for bail outs and

rating agencies failing to rate correctly. South Africa is not immune, as evidenced by the

current case against J Arthur Brown, former head of Fidentia.

“What most investors tend to do is concentrate their efforts on looking at investment risk,

costs, relative performance, asset class exposure, mandates, objectives and the like. Very

few questions are asked about the governance of CIS and consequently how safe their

money is from fraud,” says Paine.

“By way of explanation, CIS are governed by the Collective Investment Schemes Control

Act (CISCA) which regulates, amongst other things, how funds are managed, what

securities can be held in the fund and who can act as trustees. The Financial Services

Board (FSB) polices CISCA and also approves the trustees. All assets in a CIS are held

separately from the investment manager or the management company’s assets, and are

instead held by the trustee of the CIS,” she explains.

“The trustee is licensed under CISCA, appointed by the management company, and

regulated by CISCA and the Financial Institutions Act (FIA). It is the trustee’s responsibility

to ensure that the CIS is run in compliance with CISCA. The trustee is the custodian of the

assets of the CIS.”

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The management company appoints an investment manager, regulated under the FAIS

Act and the Financial Institutions (Protection of Funds) Act, to manage the assets of the

CIS in accordance with a detailed investment mandate.

“In addition, both the management company and the investment manager are required by

law to monitor compliance with the founding document and the investment mandate of the

CIS and its various portfolios, and to highlight any discrepancies to the trustee as well as

the portfolio manager so the portfolio can be brought back in line,” Paine says.

The manager is also obliged to send investors a quarterly report and an annual report

listing all the assets in the portfolio in which they are invested. Paine also reassured

investors that the local financial press acts as a watchdog of sorts through its constant

coverage of issues like performance and fees. And, because of widespread use of CIS for

institutional investments, there are myriads of analysts and other financial professionals

constantly carrying out very detailed due diligences on these funds which cover not only

investment process but also regulatory adherence and compliance.“This comprehensive

list of gatekeepers should give investors reassurance that consumer protection is of

primary concern in the CIS industry,” says Paine (6 January, 2009).

Another effective structure instituted in other jurisdictions to promote the benefits of

collective investments to intermediaries, investors and government so they understand,

appreciate and value the ability of collective investment schemes to build wealth, with the

continuing growth of the industry is the Association of Collective Investment Scheme.

In South Africa for example (http://www.aci.co.za), the Association of Collective

Investments [ACI] was established in 1967 as The Association of Unit Trusts [AUT] and

represents the collective interests of South African management companies, registered

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foreign collective investment schemes and their investors. The primary aim of the

Association is to facilitate the development and growth of the industry, through its dealings

with the authorities and regular communication with the media and investing public.

Working on behalf of its members, the Association acts as the custodian of codes of

practice and standards throughout the industry, and is the forum for identifying and

fulfilling common goals.

The Association has the following Strategic objectives:

• Maintain and reinforce intermediary and investor confidence in collective

investments.

• Make collective investments the vehicle of choice for retirement planning.

• Extend the collective investment industry's areas of strength and activity by

refocusing on retail clients and employing retention strategies.

• Raise the profile of collective investments amongst investors, intermediaries and

regulators.

To achieve its objectives, the Association focuses on the following areas:

Education

To promote and increase the competency and understanding of the collective investment

industry through formal educational and compliance programmes.

Foreign Collective Investment Schemes

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To promote and protect the interests of associate members, by raising and addressing

common issues and concerns through their local representatives.

Fund Management

To ensure the industry maintains a highly competitive position through the use of

innovative and worldwide practices in fund management, with particular focus on fund

classification, reporting standards, investment limitations, instruments and mandates, and

liaison with appropriate bodies.

Governance

To facilitate the development and global competitiveness of the industry and the

attainment of its vision by initiating progressive legislation, providing consultation and

assistance on proposed legislation and changes and ensuring its implementation on

finalization while acting in the interest of its investors.

Industry Development

To investigate and recommend enhancements to the legislative, framework, administrative

processes and platforms and product structures to ensure continuing product innovation

within the ambit of the Collective Investment Schemes Control Act, thereby retaining

existing and attracting new investors to the collective investment scheme industry.

Industry Promotion

To build the ACI brand and to raise the profile of the industry through communication and

promotional activities;

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Industry Supervision

To set standards for the industry members in the conduct of their businesses and in their

dealings with intermediaries as well as the investing public; to monitor adherence to these

Codes and to address breaches that may occur.

Technical

To clarify and resolve operation issues, particularly in auditing, administration and

accounting practices; to develop and advise on appropriate recommended industry

standards and guidelines.

Taxation

To clarify and resolve taxation issues that have bearing on the collective investment

industry with fiscal and state authorities by investigating and addressing both threats and

opportunities in this area and to recommend industry practice.

It is very unfortunate that in Ghana, the Collective Investment Schemes have not been

able to come together to form this useful association compelling the funds to engage in the

aforementioned activities on individual basis.

2.6 MEASURING THE PERFORMANCE OF CIS

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Ekkachai Boonchuaymetta (2008) conducted a thorough research into the various

collective investment scheme performance measurement theories propounded by various

scholars. He started by saying that the performances of fund managers are regularly

evaluated by both academic researchers and investors. Many studies attempted to

examine the mutual fund performance by proposing both theoretical and empirical studies.

Harry Markowitz (1952) first introduced the principle theory of portfolio selection, which

uses the mean-variance analysis explaining how investors can select the optimal portfolio.

Merton (1972) derived the mutual fund theorem which also explains the efficient frontier

portfolio as the set of feasible portfolio. The optimal portfolio provides the highest expected

return for a given level of risk. The risk of the portfolio can be measured by using variance-

covariance matrix. This theorem is consistent with the concept of the Capital Asset Pricing

Model (CAPM) which is popularly used to analyze the characteristics of the mean-

variance.

Ekkachai went further to state that, Treynor and Mazuy (1966) proposed a quadratic term

to test for market timing ability of fund managers. They argued that fund managers should

have not only an ability to select the undervalued securities, but also an ability to forecast

the movement of market. This intuition is subsequently supported by Fama (1972),

explaining that the components of mutual fund performance which can measure the funds’

ability is divided into two parts.

The first part is selectivity, determining fund managers’ ability in selecting the securities

into the portfolio. Another part is timing, measuring fund managers’ ability in predicting the

market price movement. Therefore, a fund manager with a market timing ability is likely to

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invest a greater equity proportion of the portfolio during the bull market and hold a smaller

equity proportion of the portfolio during the bear market. Based on the regression

measure, a significant positive coefficient of a quadratic term indicates a market timing

ability of fund managers.

However, the empirical study of Cumby and Glen (1990) who applied the Treynor-Mazuy

timing model, found a significant negative coefficient, meaning that fund managers do not

have an ability to forecast the market movement. This finding in a negative coefficient is

also supported by the studies of Coggin et al (1993)

Ekkachai Boonchuaymetta said nowadays, there are several empirical studies on the

evaluation of mutual fund performance. The U.S. mutual fund is the most widely used in

the evaluation. For example, Fama and French (1996) introduced three-factor model of

evaluating the return of mutual fund. The model explains that the expected return on a

portfolio in excess of the risk-free rate is determined by the sensitivity of its return to three

factors:

(1) The excess return on a market portfolio,

(2) The difference between the return on a portfolio of small stocks and the return on a

portfolio of large stocks, and

(3) The difference between the return on a portfolio of high-book-to-market stocks and the

return on a portfolio of low-book-to-market stocks.

Carhart (1997) proposed four-factor model to evaluate the fund performance by adding the

momentum factor return to Fama-French’s work.

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2.7 THE IMPACT OF CIS ON FINANCIAL SECTORS

2.7.1 Collective Investment Scheme Industry in the U.S

The Investment Company Institute (ICI) May, 2009 survey report stated that, mutual funds

have grown to represent an important part of the U.S. financial system over the past two

decades. Between mid-year 1989 and mid-year 2009, assets held in mutual funds have

increased from $899 billion to $10.0 trillion. The number of U.S. households that owned

mutual funds rose from 23.2 million to 50.4 million over the same period. As a result, as of

mid-year 2009, 43 percent of U.S. households owned mutual funds, representing 87.1

million individual fund shareholders. Furthermore, mutual fund holdings represent a

significant component of the savings and investments of many American households, with

mutual fund assets now accounting for one-fifth of households’ financial assets.

2.7.2 Collective Investment Scheme Industry in Ghana

The Security and Exchange Commission of Ghana in its 2008 Annual Report, reported

that the Collective Investment Scheme industry which consists of Mutual Funds and Unit

Trust Schemes, represent one of the fastest growing segments of the financial industry in

Ghana, as it allows for small and flexible investments by ordinary Ghanaians. The

collective investment schemes have provided vast opportunities for small investors to pool

resources to collectively participate in the capital market which hitherto was perceived as

the preserve of the rich and the elites in society. The report noted that, the continuous

public education campaign mounted by the SEC is gradually breaking cultural and

psychological barriers to savings and investment in the country. In 2008, there were seven

(7) Mutual Funds and Four (4) Unit Trust Schemes operating in the CIS Market with a total
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net asset value of GH¢149, 581,990.74 representing an industry growth of 21.18% over

the previous year. The entire industry made an average return/ annualized yield of

25.81% for investors, compared to 21.30% industry average return in 2007. Total amount

of funds mobilized also increased by 7% over the same period. The total number of unit/

share- holders in the schemes went up from 99,167 in 2007 to 123,265 in 2008,

representing growth in industry shareholder base of 25%.

2.7.3 Collective Investment Scheme Industry in South Africa

Andries Blake Walters (2008) reported that the Collective Investment industry in South

Africa started in 1965 with the introduction of the first unit trusts, the South African Growth

Equity fund (SAGE). The fund was created with the objective to give the man in the street

access to the Stock Market without actually investing directly. The original unit trusts

mainly gave access to equities on the security exchange. As the success of this new

investment vehicle grew, access was also given to other asset classes such as property,

capital and money markets.

Blake further noted that gradual awareness of the benefits of collective investments as an

investment vehicle has led to more and more individuals as well as institutions in South

Africa taking note of and starting to invest in it. He said this growth has culminated in an

industry in South Africa that in 2006 had R546,656 million assets under management that

were invested in 750 funds, managed by 34 management companies for 1,945,148

investors. The total of all the equity holders under management in the industry constitutes

4.42% of the market capitalization of the Johannesburg Stock Exchange (JSE).

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Leon Campher, CEO of the Association for Savings and Investment of South Africa

(ASISA), described the rate at which the local CIS industry continued to grow as truly

remarkable, considering that this growth was achieved while the world was suffering the

worst financial markets crisis in history.

He noted that the South African collective investment schemes (CIS) industry displayed

unprecedented resilience amidst the worst ever global financial markets crisis, with assets

under management peaking at a record R661-billion by the end of December 2008. In

addition, the net quarterly inflows of R26-billion for the fourth quarter of 2008 was the

second highest ever recorded by the CIS industry. The highest ever net quarterly inflows

of R28-billion were attracted in the first quarter of 2007. Net inflows for 2008 totaled R60-

billion, only R9-billion behind the R69-billion achieved in 2007. In 2006, total net inflows

were R58-billion, the same as in 2005. And five years ago in 2004, net inflows were R42-

billion. At the end of 2008, investors could choose from a record number of 884 funds,

compared to only 204 ten years ago. Leon Campher (2 April 2009).

2.7.4 Collective Investment Scheme Industry in Nigeria

In Nigeria, M. M. Ibrahim (2005) reported in a research that seeks to evaluate the

performance of Collective Investment Schemes in Nigeria between 1990 and 2002 that,

the deregulation and liberalization of the financial system following the introduction of the

structural adjustment programme by the then military regime in 1986 stimulated a number

of financial innovations in line with the changing market conditions. One of such

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innovations was the commencement of the Mutual Fund or unit trusts schemes in 1990.

Banks in particular have progressively increased their participation in the provision of

mutual funds or unit trust scheme within the last decade and a half. Many banks had

engaged in selling mutual funds shares to their customers and in many cases act as

Investment Advisers and managers of the schemes. Since 1990, a number of schemes

mainly bank promoted have been registered. By 31st December 2002, the Securities and

Exchange Commission (SEC) had registered up to 20 Mutual Funds while others still in

the pipeline. Out of these 15 were promoted by banks and only 5 five were non – bank

promoted schemes. Practically all the funds are open-ended except one that is a closed-

ended fund. Furthermore, 14 or 70% of the funds managed have been raised as

income/growth funds.

Gross sales of all the mutual funds in Nigeria was N5.024 billion as at 2002, up from a

previous record of N2.4 billion in 1997. This amount was significant when compared to the

paltry sum of N54.27 million initially recorded by the industry at inception in 1991. The

growing importance of the industry to a significant segment of investors will be better

appreciated when viewed from the perspective of the growth in shareholder values over

the 10 year period. The aggregate net asset values of the Funds rose from a very narrow

base of N25.2 million to N2.34 Billion in 1997. As at the end of 2002, investors had

grossed over N8.39 Billion. The major factors behind that phenomenal growth are capital

appreciation and the surge in sales by an increasing number of registered Funds. One

reason for the surge in sales has been the previous bifurcation of banks into commercial

and merchant categories that placed the later in competitive disadvantage in mobilizing

retail deposits. As part of their new product development to circumvent the rule, the

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merchant banks promoted an increasing number of mutual fund schemes. Thus out of the

20 mutual funds only 5 were non-bank promoted.

CHAPTER THREE

METHODOLOGY

3.0 INTRODUCTION

Various research methodologies were evaluated, after which a specific methodology was

chosen. A description of the research methodology used is given, why it was chosen and

how it was applied. During the data collection session, ethical issues that needed to be

addressed pertaining to the data collection process was addressed to ensure that data

collected was relevant and comprehensive enough to give substance to the findings.

3.0.1 Profile of the Organization

Location and Size

The Ho Municipality is one of the 18 districts in the Volta Region of the Republic of Ghana.

It is located between Latitudes 6° 20”N and 6° 55”N and Longitudes 0° 12”E and 0° 53” E

and covers an area of 2.660 sq km. The Municipality shares boundaries with the Adaklu-

Anyigbe District to the South, Hohoe Municipal to the North, South-Dayi District to the

67 | P a g e
West and the Republic of Togo to the East. The Ho Municipality is also home to the

regional capital of the Volta Region. This, of course, makes it the largest urban centre in

the region.

The Municipality has thirteen (13) Area Councils namely; Yangon, Sokode, Kpedze, Tsito,

Abutia, Avatime, Hokpeta, Weto Hedzefe, Ho Urban, Dutasor, Anyirawase, Norvisi and

Honuta/Kpoeta

Mission

The Ho Municipal Assembly (MA) as an integrated development focused institution

facilitates the effective mobilization and utilization of human and material resources for the

provision of reliable social and economic services for the people.

The Ho MA regards good governance and public-private partnership as essential to

holistic development. The MA is also committed to the sustenance of traditional institutions

and the environment (2010 – 2013 Medium Term Plan of Ho Municipal Assembly).

Objectives

1) To ensure continued stability of the micro economy in the Municipality

2) To make the private sector the engine of growth in the municipality

3) Promote good governance and civic rights and responsibility

4) To improve the capacity of human resource for development

Climate (Temperature)

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Generally, mean monthly temperatures in the Municipality range between 22°C and 32° C

while annual mean temperatures range from 16.5°C and 37.8° C. In effect, temperatures

are generally high throughout the year, which is good for plants and food crop farming.

During the dry season however, daily temperatures are so high that, except for irrigation in

river valleys, food crop cultivation cannot take place.

The mountainous settlements like Amedzofe, Biakpa, Vane and Ashanti Kpoeta have very

low temperatures during some parts of the year and are often referred to as the “local

winter” of the Volta Region. These low temperatures have favorable conditions for tourism

and holding capacity for foreigners who enjoy the low temperatures. For example,

Amedzofe is known to have recorded as low as 16.6° C in the month of July. Similarly,

average mean humidity for Amedzofe is also between 70% and 96% (0600hrs) and

between 53% and 87% (1500hrs)

Rainfall

The rainfall pattern is characterized by two rainy seasons referred to as the major and the

minor seasons. The major season is between March and June whiles the minor season

starts from July to November. The rest of the year is referred to as dry season. Mean

annual rainfall figures are between 20.1mm and 192mm. The highest rainfall occurs in

June and has mean value of 192mm while the lowest rainfall is in November recording a

value of 20.1.

Vegetation

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Ho Municipality falls into two main types of vegetation zones: these are the moist semi-

deciduous forest which mostly cover the hills in the Municipality and savannah woodland

which covers the rest of the municipality. The several tree species provide for domestic

fuel wood and some timber species like Wawa, Mahogany and extensive strands of

Borassius Palm (Agorti) for construction. The Shrubs and grasses provide fodder for

livestock.

Population Characteristics

The population of the Municipality has its own unique features. It has always experienced

growth in numbers over the years and has a large youthful population which is male

dominant. The population of the Municipality is not evenly distributed, and the number of

persons per square kilometer is also on the increase.

Population Size and Growth Rates

From 1970 to1984, the Municipality experienced a population growth rate of 1.17%. This

growth rate remained unchanged for the 1984-2000 censual years. This is represented in

Table 3-1 below.

Table 3-1

Population Growth of Ho Municipality

Year Population Growth Rate (%)

1970 146,006 3.9

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1984 195,441 1.17

2000 200,000 1.17

Source: 2010 – 2013 Medium Term Plan of Ho Municipal Assembly

The population growth rate of the region is 1.17% in 2000; the municipality growth rate

remained 1.17% during the same period. The current population growth rate of the

municipality is lower than the national population growth rate of 2.6%.

Age – Sex Structure

According to the 2000 Population and Housing Census, the Municipality has a relatively

larger male population compared to the female. This structure is not different from that of

the Volta Region where the Municipality is located. It however differs from that of the

National sex structure that shows a female dominance. The large male population in the

Municipality is due partly to the continuous influx of settler farmers who come into the

Municipality to tap the Municipality’s agricultural potentials.

Table 3-2

Male – Female Split

Area Male % Female %

Ho Municipality 104,000 52 96,000 48

Volta Region 988,787 54 913,035 46

National 9,025,019 49.02 9,387,228 50.98

Source: 2010 – 2013 Medium Term Plan of Ho Municipal Assembly

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In terms of age structure, the Municipality has a large youthful population. The two cohorts

that contain most of the people are 0-14 group and 15-64 groups.

Table 3-3

Age Structure of Ho Municipality

Age Cohort Ho Municipality Volta Region Ghana (%)

(%)
(%)

0-14 40.9 42.6 41.3

15-64 56.3 52.4 55.2

65+ 6.3 5.4 5.2

Source: 2010 – 2013 Medium Term Plan of Ho Municipal Assembly

Another significant feature of the Municipality’s population is its large labour force. The

cohort that falls within the active labour force constitutes 56.3% of the Municipality’s

population. This is a bit higher than the regional and national active labour force of 52.4%

and 55.2% respectively.

Rural – Urban Split

The total population of Ho Municipality is 200,000 as per the 2000 Population and Housing

Census. The urban population of the Municipality is 73,893 being 37% while the rural

population is 126,107 being 63%.

Ethnicity and Religion

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The Municipality is not ethnically diverse with Ewa domination followed by Akans. The

Ewa tribes are represented by various groups such as Avatime, Asorgli, Awudome.

In terms of religion, Christians dominate by 90% of the total population. The Muslim

community forms 6%. Traditional religion still has a place in the Municipality and it is

practices by 4% of the population.

Traditional Set-Up

There are five Traditional Paramount Chiefs in the Municipality. These are Asorgli

Traditional Area, Awudome Traditional Area, Avatime Traditional Area, Kpedze Traditional

Area, and Abutia Traditional Area. These five stools however collaborate in promoting the

development of the Municipality.

The tradition of communal spirit, both in terms of labour and funding, is a major project

implementation strategy of the Municipality. This spirit has however become very low or

almost non-existent in the urban communities as compared to the rural areas. The

traditional set-up is endowed with some cultural practices and festivals such as Yam

festival of Asorgli state, Zendo Festival for the people of Klefe, Sasa Festival of the people

of Afrofu. Traditional drums and dances such as Adabatram, Zigi, Borborbor and zagada

are also enjoyed by the people.

Health Facilities

The Ho Municipality had fifty-six (56) health facilities out of which forty-five percent (45%)

were under Ghana Health Service – Ministry of Health. The rest were Mission and Private

owned.

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 Table 3-4
Breakdown of Health Institutions

№ Category Number

1 Regional Hospital 1

2 Municipal Hospital 1

3 Polyclinic 1

4 Health Centre 39

5 RCH/FP Static Clinics 3

6 Quasi Government Institutions 1

7 Christian Health Association Clinics 2

8 Private Maternity Homes 5

Private Clinics 3

Total 56

Source: Annual Municipal Health Directorate Report 2005.

Education

The Municipality has 188 Primary Schools, 129 Junior high Schools, 187 Kindergartens,

20 Senior Secondary Schools, 1 Teacher Training Collage, 1 Polytechnic and 1 Private

University.

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3.0.2 Research Design

Population of the Study

The Ho Municipality was considered as the population of the study. As per the 2000

Population and Housing Census of Ghana, the Municipality has 200,000 inhabitants made

up of 73,893 representing 37% living in the urban centre and 126,107 representing 63%

as rural duelers.

Sample Size

To ascertain the financial literacy status of Ghanaians regarding CIS, a sample size of 200

inhabitants of Ho Municipality were sampled to represent the entire population of 200,000.

Out of the 200 sampled, 100 were from the urban centre and the other 100 from the rural

communities.

Sampling Technique

To fairly represent the population by the sample size, a simple random sampling technique

was adopted. This sampling technique involves selecting units at random from the

sampling frame. It was selected because the Municipality is very vast with different people

from different religious, educational, tribal, political, and social groupings. Using any other

sampling technique was difficult leading to the choice of simple random sampling to

randomly pick respondents to the questionnaire.

Data Collection Instrument

Research is a process that involves obtaining scientific knowledge by means of various

objectives, methods and procedures (Welman et al, 2007). There are two (2) main

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research methodologies; quantitative and qualitative. Quantitative methodology concerns

controlling the situation and using remote, empirical and inferential methods. Qualitative

methodology on the other hand concerns unstructured interviewing and detailed

observation processes. Both quantitative and qualitative methodologies were applied.

Qualitative methodology was used to collect primary data through questionnaire

administration. The questionnaires contained both open-ended questions that gave the

respondents the opportunity to express themselves on the issue, and close-ended

questions by which respondents were only given the opportunity to agree or disagree by

ticking either yes or no.

Because quantitative methodology is used to evaluate reliable and set of objective data, it

was adopted to evaluate the performance of four (4) CIS organizations. They include

Epack, Fortune Fund, Glod Fund and Mfund.

3.0.3 Assumption

To be able to demonstrate in real terms the value that the four (4) selected CIS had

added to investors capital, an assumption is made that an investor with GH¢2,000.00 to

invest decided to invest this amount equally in Epack, Fortune Fund, Gold Fund and

Mfund for four (4) years effective January, 2005 to December, 2008. The amount gained

on his investment over the period is stated.

3.1 QUALITY CONTROL

To ensure that data collected was of the acceptable quality, all questionnaires retrieved

from respondents were coded by a team of three (3) people made up of the Principal
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Researcher as the moderator and two (2) trained National Service Personnel. Particular

attention was paid to both coverage and content errors.

The questionnaires were then sent to the Statistical Laboratory of Ho Polytechnic where

Statistical Package for Social Sciences (SPSS) software was used to analyze them.

3.2 ETHICAL ISSUES

The biggest ethical issue was the confidentiality of the information provided by the

respondents since it borders on their personal investments. Several questions were asked

in this regard. Some of the respondents wanted an assurance that the information

provided would be protected from public consumption.

It was explained to them that the information been sought was only for the purpose of

using the summary of the results for this dissertation in partial fulfillment for the award of a

Professional Postgraduate Diploma in Business Administration and Management

Consultancy and that, none of their personal data would ever be disclosed to the public.

77 | P a g e
 CHAPTER FOUR

DATA ANALYSIS AND FINDINGS

4.1 INTRODUCTION

The data collected as described in Chapter 3 is analysed in this chapter both for urban and

rural centers. The purpose of this chapter is to demonstrate with statistical evidence and

analysis of assumptions made to identify trends to support deductions made in this

research. The chapter starts with the profile of the respondents after which the responses

from the respondents analysed in detail in the context of the research.

4.2 PROFILE OF RESPONDENTS

The total sample is 200 respondents residing in the Ho Municipality. Each of these

residents reside either in the urban or rural centers of the Municipality. Here are the main

profiles:

78 | P a g e
 Figure 4-1

Gender Profile of Respondents in the Urban Centre

70

60 62%

50

40
38%
Percentage
30

20

10

0
Male Female

Figure 4-1 shows the gender of respondents who responded to the questionnaires in the

urban centre. Out of the 100 respondents from the urban centre, 62 percent were males

whilst 38 percent were females.

79 | P a g e
 Figure 4-2

Gender Profile of Respondents in the Rural Centers

Female
46%

Male
54%

In the rural centers, the gender distribution of respondents is represented by, 54% as

Males and 46% as Females.

The gender profiles of respondents from both the urban and rural communities provide us

with significant findings.

80 | P a g e
 Table 4-1

Age Profile of respondents in the Urban Centre

Age group Frequency Percentage(%)

20-30 years 47 47
Table 4-1
31-40 years 28 28
represents the
41-50 years 23 23
age group of
51-60 years 2 2
respondents in Total 100 100
the urban

centre. Out of 100 respondents, 47 percent fall within the age group of “20-30 years”; the

second highest frequency of 28 representing a percentage value of 28 was within the age

group of “31-40 years”. Those between the ages of “45–50 years” formed 23% of the total

respondents. The age category of respondents that recorded the lowest frequency of 2

and a percentage point of 2 percent is “51-60 years”

Figure 4-3

81 | P a g e
 Age Profile of Respondents in the Rural Centers

40

35%
33%
30

26%
Percentage
20

10

6%
0 31-40
41-50 51-60 20-30

The bar chart above depicts the age distribution of respondents who respond to the

questions in the rural centers. Out of the 100 questionnaire, 35% of the respondents fall

within the age group of “31-40 years” as the highest percentage in this case, followed by

respondents whose age groups fall between “41-50 years” representing 33%. The next

percentage value of 26 was recorded for those whose age was “20-30 years”. Lastly, 6%

of them fall within the age group of “51-60 years” as the lowest percentage in this case.

Figure 4-4

Educational Profile of Respondents in the Urban Centre

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 80
75%

60

Percentage
40

20 22%
3%

0
Basic Secondary Tertiary

Figure 4-4 shows the educational levels of the respondents. Out of the 100 respondents

who responded to the questionnaires in urban centers, 75 percent had tertiary education,

being the highest in this case. 22 percent had secondary education, and 3 percent of the

respondents had basic education.

Figure 4-5

Educational Profile of Respondents in the Rural Centre

83 | P a g e
 70

60 61%
50

40
Percentage

30 31%
20

10
8%
0
Basic Secondary Tertiary

The bar chart above represents respondents’ level of education in the rural area. It can be

seen that 61% of the respondents were tertiary education certificate holders, 31% of them

were secondary education certificate holders and lastly only 8% of them were basic

education certificate holders.

4.3 ANALYSIS OF RESPONSES RECEIVED

The research sampled 100 respondents from the urban centre and another 100 from the

rural communities making a total of 200 respondents. It is wealth noting that, not all

respondents answered all the questions or selected all the propositions in the questions.

84 | P a g e
However, all the graphic depictions below are applied to show the results as a percentage

of the total population of 200. To be able to properly analyse the responses from the field

to meet the objectives of this research, responses for the six (6) research questions as

stated in Chapter one earlier are considered individually and analysed.

4.3.1 Research Question One

How did the following CIS that were fully operational between January, 2005 and
December, 2008 performed?

 Epack operated by Databank Assets Management Ltd.

 Gold Fund operated by Gold Coast Securities Ltd.

 Mfund operated by Databank Assets Management Ltd.

 Fortune Fund operated by Strategic African Securities.

To be able to conduct performance comparative analysis between these funds, secondary

data on their performance was obtained from Gold Coast Securities Ghana Ltd, a copy of

which is attached as Appendix 2. For the purpose of this research question, data in

Appendix 2 is extracted to represent Table 4-2 below.

Table 4-2

Performance of Collective Investment Schemes

(Jan. 2005 – Dec. 2008)

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Fund Unit Price Unit Price Return Per Unit

GH¢ %
Jan. 2005 Dec. 2008

Epack 0.4526 0.8326 0.3800 83.97

Fortune Fund 0.0514 0.1800 0.1286 250.19
Gold Fund 0.0525 0.1023 0.0498 94.86
Mfund 0.1128 0.1934 0.0806 71.45

Source: Adopted from Appendix 2.1, 2.2, 2.3 & 2.4

From Table 4-2, a unit of Epack was sold at GH¢0.4526 in January, 2005 but rose to GH

¢0.8326 in December, 2008 making a capital gain of GH¢0.800 per unit. Fortune Fund

also made a capital gain of GH¢0.1286 on shareholder’s investment per unit from GH

¢0.0514 in January, 2005 to GH¢0.1800 in December, 2008. Gold Fund, one of the funds

that is expanding its branches all over the country was offering a unit of its shares in

January, 2005 at GH¢0.0525, this rose to GH¢0.1023 by the end of December, 2008

creating additional value for its shareholders to the tune of GH¢0.0498. The last but not

the least is Mfund which increased investor’s capital from GH¢0.1128 in January, 2005 to

GH¢0.1943 in December, 2008, a capital gain of GH¢0.0806 on investor’s capital. Figure

4-6 below buttresses these findings.

Figure 4-6
300
Performance of Collective Investment Schemes
250 Jan. 2005 – Dec. 2008 (%)

200
Epack
150 Fortune Fund
Gold Fund
100
Mfund
50

0
Return Per Unit (%)
86 | P a g e
Figure 4-6 demonstrates the performance of the selected CIS in percentage terms. It is

obvious that Fortune Fund managed by Strategic African Securities Ltd increased

investor’s capital by 250.19 percent within four (4) years (2005 – 2008), followed by Gold

Fund with 94.86 percent capital gain, Epack with 83.97 percent, and Mfund 71.45 percent

within the same period.

To practically demonstrate the financial value that had been added to investor’s capital by

these four (4) CIS as depicted by Table 4.2, the following assumption is made: Let us

assume that an investor with an amount of GH¢2,000.00 to invest in 2005 decided to

invest it equally into these four (4) CIS for four (4) years ending December, 2008. The

outcome of his investment would look like Table 4-3 below.

Table 4-3

Hypothetical Scenario of Investing GH¢500.00 each in Four (4) CIS for Four years

(Jan. 2005 – Dec. 2008)

A B C D E F
Fund Unit Price Capital to No. of Units Return Per Capital Gain
as at Jan, be Invested of Shares Share After GH¢
2005 GH¢ GH¢ Bought 4 yrs. (D×E)
(C÷B)
Epack 0.4526 500.00 1,104 0.3800 419.52
Fortune Fund 0.0514 500.00 9,727 0.1286 1,250.89
Gold Fund 0.0525 500.00 9,523 0.0498 474.25
Mfund 0.1128 500.00 4,432 0.0806 357.22
Total 0.6693 2,000.00 24,786 0.639 2,501.88
87 | P a g e
Source: Adopted from Appendix 2.1, 2.2, 2.3 & 2.4

After four (4) years as depicted by Table 4-3, the investor would earn an amount of GH

¢2,501.88 extra income on his investment representing 125.09 percent capital gain.

4.3.2 Research Question Two

What is the financial literacy status of Ghanaians both in the urban and
rural areas regarding CIS?

This question seeks to find out the level of financial literacy within the urban and rural

duelers as far as CIS are concerned. Respondents were asked whether they are aware of

the benefits of CIS or not. Data collected from respondents is represented in Table 4-4

below.

Table 4-4

Awareness of the Benefits of CIS

Responses Urban Rural Total

Aware 41 30 71
Unaware 59 70 129
Total 100 100 200

A look at Table 4-4 indicates that, 41 respondents in the urban centre said they were

aware of the benefits of investing in CIS; whiles 59 of them said they were not aware. In

the rural area, 30 respondents said they were aware and 70 of them said they were not

88 | P a g e
aware. The aggregate of the responses from the urban and rural communities is

represented in Figure 4.7 below.

Figure 4-7

Awareness of the Benefits of CIS

140
120
100
80 Aware
60 Unaware

40
20
0
Awareness

Figure 4-7 shows that, 129 respondents representing 64.5 percent of the total population

were not aware of the operations of CIS and only 71 respondents representing 35.5

percent were aware of CIS as an investment vehicle.

89 | P a g e
4.3.3 Research Question Three

Do people with regular income invest part of their income?

The brain behind this question is to determine the number of respondents with regular

income either formal or informal that invest part of their regular income. To obtain reliable

data for this question, an earlier question was asked as to whether the respondents have a

regular source of income (Reference Appendix 1, Q 6). The responses from this question

indicated that 138 respondents in both urban and rural communities have regular income

source. This led to the research question under consideration (Do people with regular

income invest part of their income?). Out of the 138 respondents who have regular income

source, 112 said they regularly invest part of their income and only 26 said they do not

invest part of their income. This is represented in Table 4-5 below.

Table 4-5

Investment status of Ghanaians

Responses Urban Rural Total

Yes 56 56 112
No 14 12 26
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Total 70 68 138

The result in Table 4-5 is graphically represented in Figure 4-8 below with majority of

respondents indicating that they regularly invest part of their income.

Figure 4-8

Investment Status of Ghanaians

120

100

80

60 Yes
No
40

20

0
Investment Status

4.3.4 Research Question Four

What investment vehicle do people with regular income

invest?

This question seeks to find out the actual investment product that the 112 respondents

who said they regularly invest part of their income invest in.

91 | P a g e
 Table 4-6

Level of Investment in Investment Products

Product Urban Rural Count Total Percentage (%)

Count

Bank Deposit 19 26 45 40.18

Mutual Funds 6 10 16 14.29
T-Bill 12 14 26 23.21
Shares 2 6 8 7.14
Fixed Deposit 4 0 4 3.57
Business 6 0 6 5.36
Debenture 2 0 2 1.79
Insurance 1 0 1 0.89
Provident Fund 1 0 1 0.89
Credit Union 3 0 3 2.68
Total 56 56 112 100

From Table 4-6, 45 respondents with regular income save part of their income with banks

for interest. 16 people invest in Mutual Funds, 26 invest in Treasury Bills, 8 in shares of

public limited liability companies, 4 in Fixed Deposit. 6 of the respondents said they plough

back their income into their businesses, 2 invest in Debentures, 1 respondents each

indicated that they put part of their income in Insurance and Provident Fund. The rest of

the 3 respondents invest part of their income with Credit Unions. The percentage

representations of these responses are indicated in Figure 4-9 below.

92 | P a g e
 Figure 4-9

Level of Investment in Investment Products (%)

45
40 Bank Deposit
Mutual Fund
35
T-Bill
30
Share
25
Fixed Deposit
20
Business
15
Debenture
10 Insurance
5 Provident Fund
0 Credit Union
Investment Products
The Risk-Return Trade-off principle had been stated emphatically in Chapter one of this

report. The principle states “the low levels of uncertainty (low risk) are associated with low

potential returns, whereas high levels of uncertainty (high risk) are associated with high

potential returns”. Figure 4-9 indicated that respondents who invest part of their income do

this in riskless products. As many as 40.18 percent said they keep their money in their

Bank Accounts and the next highest of 23.21 percent invest in Treasury Bills. This means

that, majority of the respondents lack the ability to take calculated risk therefore invest in

low-risk financial products. The impression that putting once money in bank deposit is

investment also came to play in the results as stated in Figure 4.9.

4.3.5 Research Question Five

What medium of communication informed people most about CIS?

Financial literacy as defined earlier in Chapter two is the ability to read, analyse, manage

and communicate personal financial conditions that affect material well being”. This

implies that the financial information must be made available for reading or listening and

93 | P a g e
analyzing. This is the bases on which this question was asked. The question seeks to find

out from the respondents the medium of communication that made the most impact on

their financial literacy status. Data collected in this regard is illustrated in Table 4-7 below.

Table 4-7

Medium of Information Communication

Medium Urban Rural Total Percentage (%)

TV 10 7 17 18.09
Newspaper 12 10 22 23.40
Radio 7 9 16 17.02
Friends 11 7 18 19.15
Agents 6 15 21 22.34
Total 46 48 94 100

In the beginning of the research report, it was stated that the collective investment

schemes have provided vast opportunities for small investors to pool resources to

collectively participate in the capital market that hitherto was perceived as the preserve of

the rich and the elites in society. It is also stated that “the continuous public education

campaign mounted by the SEC is gradually breaking cultural and psychological barriers to

savings and investment in the industry”. This was tested with Appendix 1 question 16 to

determine how effectively collective investment schemes are promoted as an investment

vehicle and through which medium they are best communicated in the urban and rural

areas of the Ho Municipality. The results are shown in Table 4-7 above. These results are

also graphically presented in Figure 4-10 below.

94 | P a g e
 Figure 4-10

Medium of Information Communication (%)

25

20
TV
15 Newspaper
Radio
10
Friends
5 Agents

0
Mediumof Communication

Figure 4-10 indicated that 23.40 percent of respondents said they receive information on

the operations of CIS through newspapers. 22.34 percent of respondents indicated that

they heard of CIS through Agents of the CIS. Majority of them gave credit to Gold Coast

Securities Ghana Ltd for being the only operator to open a branch in the Municipality.

Interestingly, 19.15 percent of the respondents said they heard of CIS through friends and

family members. The electronic media, TV and radio recorded 18.09 and 17.02 percent

respectively. This is not good enough taking into consideration the proliferation of TV and

FM radio stations all over Ghana.

4.3.6 Research Question Six

What are the factors militating against regular investment in CIS?

The motive behind this question was to find out from those respondents who indicated that

they do not invest in CIS why they do not invest. The responses to this question as

depicted in Table 4-8 below shows that 47 respondents complained that yes, they receive

regular income, but the income they receive is not sufficient enough to enable them invest
95 | P a g e
part. 30 complained that the official operational location of these funds is not favourable to

them. Another 30 responded that they do not trust the operations of these funds, 29 said

general low income status of Ghanaians do not promote investment in CIS. 25

respondents mentioned lack of comprehensible information on CIS as the major hindrance

to investment in CIS while only 9 said people do not invest because of the poor investment

habit of Ghanaians in general.

Table 4-8

Factors Militating Against Investment in CIS

Factor Urban Rural Total %

Inadequate income 27 20 47 23.5

Low income status 16 13 29 14.5
Lack of information 10 15 25 12.5
Location of CIS offices 12 18 30 15
Lack of trust in operations 15 15 30 15
General poor investment habit 11 8 19 9.5
High cost of living 9 11 20 10
Total 100 100 200 100

The graphical representation of Table 4-8 is shown in Figure 4-11 below.

96 | P a g e
 Figure 4-11

Factors Militating Against Investment in CIS

25

20
Inadequate Income
Low Income Status
15
Lack of Information
Location of CIS
10
Lack of Trust
Poor Investment Habit
5
High Cost of Living

0
Factors

The responses to this question as depicted in Figure 4-11 shows that majority of

respondents identified inadequate income as the major hindrance to their investment

pattern as far as CIS are concerned, followed by the location of these funds and lack of

trust in their operations. Following closely is low income status of Ghanaians, lack of

97 | P a g e
comprehensible information on CIS, high cost of living and poor investment habit of

Ghanaians.

It is worth noting that, among all the fifteen (15) CIS that are operational in Ghana as at

March, 2010 and illustrated in Table 1.2 in Chapter 1, only Anidaso Mutual Fund operated

by New Generation Investment Services Ltd in Kumasi is operated by a Fund Manager

located outside Accra. It was also found out that, only Gold Coast Securities Ghana Ltd

has a branch in the Municipality and two branches in the Volta Region.

4.4 RESEARCH FINDINGS

4.4.1 Profile of Respondents

Gender

During data collecting, 62 percent of respondents in the urban centre were males and 38

percent were females. In the rural area, 54 percent were males and 46 percent were

females.

Age

The age distribution of respondents in the rural area was; 35 percent between 31-40

years, 33 percent between 41-50 years, 26 percent between 20-30 years and 6 percent

between 51-60 years. In the urban centre, 47 percent were between the ages of 20-30, 28

percent were between 31-30 years, 23 percent were between 41-50 years, and 2 percent

were between 51-60 years.

Education
98 | P a g e
In the urban centre, 75 percent of respondents have tertiary level education, 22 percent

with secondary level education, and 3 percent with basic level education. Results from the

rural area indicated that, 61 percent of respondents have tertiary level education, 31

percent have secondary level education, and 8 percent have basic level education.

4.4.2 Analysis of Responses

How did the following CIS that were fully operational between January, 2005 and

December, 2008 performed?

 Epack operated by Databank Assets Management Ltd.

 Gold Fund operated by Gold Coast Securities Ltd.

 Mfund operated by Databank Assets Management Ltd.

 Fortune Fund operated by Strategic African Securities.

There is no doubt that the four (4) CIS between January, 2005 and December, 2008 made

significant growth in terms of value addition to investor’s capital, supporting the position of

SEC in their 2008 Annual Report that “the CIS industry is one of the fastest growing

segments of the financial industry in Ghana”. Fortune Fund led the pack by 250.19

percent, followed by Gold Fund with 94.86 percent, Epack with 83.97 percent, and Mfund

with 71.45 percent capital gain. On yearly basis, all the funds in exception of Epack

consistently added value to shareholder’s capital between 2005 and 2008. Epack

experienced a decline in its unit price in 2008 from GH¢0.8631 in 2007 to GH¢0.8300 in

2008.

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To demonstrate the trend of yearly growth for the individual funds, Table 4-9 is used.

Table 4-9

Yearly Individual Performance of CIS (2005 – 2008) GH¢

Fund 2005 2006 2007 2008

Epack 0.4327 0.5708 0.8631 0.8300
Fortune Fund 0.0514 0.0565 0.1234 0.1759
Gold Fund 0.0507 0.0580 0.0745 0.0745
Mfund 0.1279 0.1464 0.1639 0.1932

Source: Adopted from Appendix 2.1, 2.2, 2.3 & 2.4

From Table 4-9 above, a unit of Epack was sold at GH¢0.4327 in 2005, moved to GH

¢0.5708 in 2006, GH¢0.8631 in 2007, and dropped to GH¢0.8300 at the end of 2008.

Fortune Fund also had a unit price of GH¢0.0514 in 2005, GH¢0.0565 in 2006, GH

¢0.1234 in 2007, and GH¢0.1759 in 2008. The price quoted for Gold Fund was GH

¢0.0507 at the end of 2005, GH¢0.0580 in 2006, GH¢0.0745 in 2007, and GH¢0.0745 at

the end of 2008. Mfund ended 2005 with as unit price of GH¢0.1279, went up to GH

¢0.1646 in 20056, GH¢0.1639 in 2007, and ended 2008 with GH¢0.1932.

To graphically demonstrate the yearly individual performance of CIS from December, 2005

to December, 2008, Figure 4-12 is used.

100 | P a g e
 Figure 4-12

Yearly Individual Performance of CIS (2005 – 2008)

1
0.9
0.8
0.7
Epack
0.6
Fortune Fund
0.5
Gold Fund
0.4
0.3 Mfund
0.2
Figure0.1
4-12 indicates that all the four (4) funds consistently added value to their investor’s
0
capital except Epack
2005 that experienced
2006 a drop in its unit price in
2007 2008. Does this mean that
2008
Epack has reached its peak, or the decline was as a result of operational challenges?

These are questions that should have been investigated but were not due to time

constrains. Another interesting picture depicted by Figure 4-12 is the high unit price for

Epack shares. None of the other funds in Figure 4-12 have its unit price at the end of 2008

equal to the unit price of Epack at the end of 2005. This can be attributed to the fact that

Epack as per Appendix 2.1 was established eight (8) years before the other funds. Epack

might have enjoyed monopoly for long that raised its unit price to GH¢0.4327 before the

other funds started operation.

What is the financial literacy status of Ghanaians both in the urban and rural areas

regarding CIS?

101 | P a g e
A very worrying situation as far as the Government’s effort in promoting financial literacy is

concern was observed in the Municipality. Despite the remarkable growth generated by

CIS for investors, only 41 of the respondents in the urban centre and 30 from the rural

communities said they were aware of the benefits of investing in CIS; whiles 59 of them in

the urban and as much as 70 in the rural communities said they were not aware. This

resulted to an aggregate of 71 respondents saying they were aware and as much as 129

indicating that they were not aware of the benefits of CIS. This means that majority of

respondents were not aware of CIS, left along have any idea about their operations. The

question then is; who are the main beneficiaries of this growth? The main objective for the

establishment of CIS is to give the man in the street the opportunity to invest on the stock

market which hitherto was the preserve of the rich and corporate entities. If the ordinary

person in the street does not know about CIS as per the research findings, then what

caliber of people are the investors? This the researcher will find out in another research

work.

Do people with regular income invest part of their income?

What investment vehicle do people with regular income invest?

It is worth noting that majority of Ghanaians invest part of their income. The study

revealed that 56 respondents in the urban centre invest part of their income whiles 14 said

they do not invest. In the rural communities, 56 respondents invest whiles 12 do not invest

part of their income. However, a total of 45 respondents both from the urban and rural

communities who indicated that they invest part of their income put their money in bank

deposits, 26 in treasury bills, 16 in mutual funds, 8 in shares of limited liability companies,

6 in their own businesses, 3 with credit unions, 2 in debentures, and 1 in insurance

policies. The findings that majority of respondents who invest their income do that through

102 | P a g e
bank deposit is not good enough since interest on bank deposits in Ghana is nothing to

write home about. It is laudable to keep money at the bank for safe keeping, precautionary

purposes and to inject liquidity into the economy not as an investment. The continuous

public education campaign mounted by the SEC is not enough and this calls for the

coming together of all CIS to form the Association of Collective Investment Schemes that

play pivotal role in the effective and efficient operations of CIS in other jurisdictions. A list

of the contact details of some of these associations is attached as Appendix 3.

What medium of communication informed people most about CIS?

Communication is very vital in all spheres of endeavors. It is the process through which

the public can be informed and educated on the benefits of CIS. The results as shown in

Table 4-7 indicated that 10 respondents from the urban centre and 7 from the rural

communities receive information on CIS through TV, 12 in the urban and 10 in the rural

communities said from newspapers, 7 and 9 in the urban and rural communities

respectively said through radio, 11 in the urban and 7 in the rural area said through

friends, and 6 in the urban centre and as much as 15 in the rural communities said they

receive information on CIS through agents of the funds. Surprisingly, fund managers are

not taking advantage of the proliferation of FM radio stations all over the country most of

which broadcast in local dialects to reach out to potential investors.

What are the factors militating against regular investment in CIS?

Ghanaians consider so many factors as being hindrances to their investment behaviours.

Some of these factors include; lack of adequate regular income, low general income

status, inadequate information on the operations of CIS, concentration of CIS in Accra,

103 | P a g e
lack of trust in the operations of CIS, general poor investment habits of Ghanaians, and

high cost of living in the country. The research specifically shown that, 47 respondents

complained that yes, they receive regular income, but the income they receive is not

sufficient enough to enable them invest part. 30 complained that the official operational

location of these funds is not favourable to them. Another 30 responded that they do not

trust the operations of these funds, 29 said general low income status of Ghanaians do not

promote investment in CIS, 25 mentioned lack of comprehensible information on CIS as

the major hindrance to investment in CIS while only 9 said poor investment habit of

Ghanaians in general in the course.

CHAPTER FIVE

SUMMARY OF THESIS, CONCLUSIONS AND RECOMMENDATIONS

5.1 SUMMARY OF THESIS

The main goal of every investor is to maximize returns on investments by investing in a

product and a market where he can diversify his portfolios and succeed in gaining returns
104 | P a g e
commensurate to the level of risk assumed. This implies that each and every one of us is

required to make decisions that have financial implications for us in our day to day lives.

Our ability to understand, analyze and use information to make financial decisions today

and plan for the future could be said to be a reflection of our level of financial literacy.

Financial literacy has been an issue for a lot of countries and people over the past decade.

Governments and development partners have identified financial literacy as an area that

can help strengthen individuals, households and nations. Ghana’s Financial Sector

Strategic Plan (FINSSP) has given recognition to the need to improve the financial literacy

of Ghanaians in order to accelerate financial deepening in the economy. The individual

Ghanaian is getting exposed to multiplicity of financial service providers, numerous

financial products, and the emergence of fraudsters that disguised themselves as financial

service providers some of which promise unrealistic interest payments and end up

defrauding unsuspecting individual clients. These call for urgent strategies to empower

individuals to be well equipped in order to make independent and well informed decisions

in relating to these institutions and ultimately improve the individual’s financial well being.

One of such institutions is the Collective Investment Scheme industry.

Collective investment schemes are pools of funds that are managed on behalf of investors

by a professional money manager. In Ghana, Collective Investment Schemes are

becoming a very popular investment vehicle because it is, among other things,

transparent, liquid and easily accessible. The growing investor knowledge, good market

returns and its suitability for diversification which minimizes risk, also contributes to its

popularity. The industry which consist of Mutual Funds and Unit Trust Funds represent

one of the fastest growing segments of the financial industry in Ghana, as it allows for
105 | P a g e
small and flexible investments by ordinary Ghanaians. The industry as per the 2008

Annual Report of the Security and Exchange Commission of Ghana have provided vast

opportunities for small investors to pool resources to collectively participate in the capital

market which hitherto was perceived as the preserve of the rich and the elites in society.

This research was conducted to ascertain the financial literacy status of Ghanaians with

respect to the viability of collective investment schemes.

To begin with, various relevant written materials were critically reviewed to ascertain the

facts on the ground on the subject. It was revealed that, the Collective Investment industry

which consists of Mutual Funds and Unit Trust Funds represent one of the fastest growing

segments of the financial industry in Ghana, South Africa, Nigeria and the U.S. In Ghana

for instance, the industry made a total net asset value of GH¢149,581,990.74 in 2008

compared to GH¢10,510.00 in 2002. In South Africa, the Collective Investment industry

made a total net inflow of R42-billion in 2004 and a record R661-billion by the end of

December 2008. The industry in Nigeria was not left behind in the remarkable

performance of Collective Investment Scheme; it recorded N5.024 billion as at 2002, up

from a previous record of N2.4 billion in 1997. It was also noticed that, Governments in

these countries have put in place legal frameworks to regulate and monitor the operations

of Collective Investment Schemes to protect investors, the industry and their economies.

The research was necessitated by the need to investigate and find out how much value

these Collective Investment Schemes have actually added to investor’s capital within

January, 2005 and December, 2008 in Ghana, and to determine how informed are

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Ghanaians regarding the viability of the industry. To be able to do these, market

performance figures for four (4) Collective Investment Schemes was collected from Gold

Coast Securities Ghana Ltd. to conduct a comparative analysis. There are: Gold Fund,

Epack, Fortune Fund, and Mfund. These funds were selected because they were licensed

to operate by the Security and Exchange Commission of Ghana in 2004 and market

performance records on them were available at the time of the research. It would have

been useful to consider all the CIS that were licensed in 2004, but due to time constrain;

only four (4) were considered. With regards to the financial literacy status of Ghanaians,

the Ho Municipal Assembly with a total population of 200,000 as per the 2000 Population

and Housing Census was used as a case study area. Out of the total population, a simple

random sampling technique was used to sample 200 respondents made up of 100 rural

duelers and 100 urban duelers. Questionnaires were administered by two trained National

Service Personnel. Data gathered from the field was sent to the laboratory of the

Statistical Department of Ho Polytechnic where Statistical Package for Social Sciences

(SPSS) was used to analysis and interpret the data.

The empirical study revealed that between January, 2005 and December, 2008, Collective

Investment Schemes in Ghana performed beyond the expectation of investors. Fortune

Fund made 250.19 percent on investors capital within four (4) years (2005 – 2008),

followed by Gold Fund with 94.86 percent capital gain, Epack with 83.97 percent, and

Mfund 71.45 percent within the same period. However, majority of Ghanaians were not

aware of the viability of the industry. 129 respondents representing 64.5 percent of the

total population were not aware of the operations of CIS and only 71 respondents

representing 35.5 percent were aware of CIS as an investment vehicle. It is worth noting

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that 112 respondents out of 138 who receive regular income indicated that they invest part

of their income, however, majority of them-45 representing 40.18 percent indicated that

they keep their money at the bank followed by 26 respondents representing 23.21 percent

said they invest in treasury bills. It was also found out that, 23.40 percent of respondents

rely on newspapers and 22.34 percent receive information on CIS through

representatives/agents of CIS, but lamented that these information is inadequate just as

their income.

Conclusion was drawn to the effect that the Collective Investment Scheme industry is a

fertile ground to invest therefore, fund managers must come together to form an

association to promote the interest of Collective Investment Schemes in the area of public

education on the operations of the industry. It is also recommended that the proliferation of

local FM stations all over the country should be seen as an opportunity by fund managers

to reach out to the people on their operations.

5.2 CONCLUSIONS

Indeed collective investment schemes are fertile ground to invest because, apart from the

industry’s remarkable performance between January, 2004 and December, 2008, they are

transparent, liquid, automatically diversified, managed by investment professionals, and

easily accessible.

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Majority of Ghanaians seems not to be financially literate as far as CIS are concerned.

Issues relating to finance must be accorded with ultimate importance it deserves because

a more financially literate population could actually improve the economy as funds would

be prudently invested. All important aspects of our lives will improve when we improve

financial literacy. We will plan in advance for predictable and unpredictable life events; we

will plan in advance for the education of our children and other dependents; we will plan

our families better and indeed live healthier and more prosperous lives in young and old

age.

The interesting thing about financial literacy is that it affects all of us irrespective of our

income, educational, cultural, social, religious, and gender status. Every Ghanaian Living

Everywhere therefore needs some level of financial literacy commensurate with the needs

and services available to him or her.

5.3 RECOMMENDATIONS

Based on the findings of the research, it is recommended that:

1) The collective investment schemes in Ghana should come together to form the

Association of Collective Investment Schemes-Ghana to facilitate the development

and growth of the industry, through its dealings with the authorities and regular

communication with the media and investing public.

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 2) Fund Managers must take advantage of the proliferation of FM radio stations in the

country most of which broadcast their programmes in both English and local

dialects the reach out to the people on their operations. They should also open

branches all over the country to make their operations easily accessible,

irrespective of the geographical locations of customers and potential customers.

Where it is not feasible to open branches, some banks could be contacted to act as

agents.

3) The Security and Exchange Commission should provide some incentive package

for funds that will locate their headquarters outside Accra to encourage the

establishment of new collective investment scheme in other regions and districts.

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