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FINANCIAL WATCH: Why it is beneficial to join collective investment schemes
2005-06-08 06:28:24
By Theo Mushi
Umoja Fund is the first collective investment scheme to be launched in the country and the fund manager will be the UNIT TRUST OF TANZANIA, UTT.
The custodian will be the CRDB Bank whose function is to see that the Fund Manager is adhering to the agreed investment policy.
There are many reasons why it is beneficial for small investors to pool their money in collective investment schemes. The first reason is that it is a chance for them to participate in the privatization process.
The state owned enterprises began to be privatized in 1992, and to date there over 300 SOEs which have been privatized. Strategic investors have taken majority shares in those enterprises up to 75%.
The remaining shares were reserved by the government to be sold to the public in order to broaden public share ownership.
The Dar es Salaam Stock Exchange was formed in 1998, and to date, the privatized companies which have been listed on the Stock Exchange (DSE) are TBL, TCC, DAHACO, Tanga Cement while TOL is yet to get a strategic investor and TATEPA was private company.
The government shares in the listed companies were transferred to the Privatization Trust as a custodian to look for ways of broadening public share ownership.
In 2003, the Privatization Trust was replaced by UTT whose function as custodian of the shares is also to establish collective investment schemes like the Umoja Fund. This is only one of many collective investment schemes, which will be started.
UTT and Umoja Fund are government initiatives to inculculate a culture of savings and encourage the public to buy units. It was realized that it was only the urban middle class in the urban centers which could participate in trading in shares in the DSE.
This explains why before the Umoja Fund was started, UTT conducted a countrywide public education campaign on UTT and Umoja fund to sensitize the public to buy units in the first collective investment scheme.
The funds collected by Umoja Fund will be invested in government securities, listed equities and corporate bonds.
Umoja fund will use the member`s funds for investment purposes only, and it will invest in listed companies in DSE which have a track record of making profits and these are TBL and TCC.
The government agreed to allocate 2% of TBL shares and 10% of TCC shares to Umoja Fund to be sold to the public in units with a nominal price of 100/=
The government went an extra mile to subsidise the unit price of shares by Tshs 30 to ensure that even the small savers will be empowered to buy units.
The minimum number of units one can buy is 50 and hence the investor will pay Tshs 3500 instead of Tshs 5000 because the rest is government subsidy which will last only in the IPO period which started on May 16th and will end on 29th July.
Those who will wish to buy the units after the lock in period of one year will pay the net asset value (NAV) which is the market price which will be prevailing at that time.
One may opt for income distribution and can get part of the profit, which is equivalent to dividends paid by companies.
Because these units have been subsidized and the investor paid only 70,000 for 1000 shares, he will get a return of 30,000 which is 42.80% which cannot be obtained by investing in any other investment arrangement. This is a big financial benefit.
The other advantage of investing in Umoja Fund is that these units are freely transferable after the lock in period and the Fund Manager will be required to have enough funds to buy units from investors in case they need money to meet emergency situations like school fees for children or medical expenses.
This is in contrast with investment companies where your money is locked in indefinitely unless that investment company is listed at the stock exchange.
You may not need to have funds in some cases to buy units from the fund. There is a tripartite agreement between UTT, Banks and investors.
If one wants to buy units and does not have ready cash, he may approach a bank and will get a loan but the Certificate of Ownership of units in Umoja Fund will be held by the bank until the loan is repaid, and the ownership of the shares reverts to the investor.
There are other future plans, which are envisaged, and these include arrangements with employers to remit funds from salaries of their employees to buy units either as a source of regular income (income distribution of to hold assets which are growing
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