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Investors find haven in collective scheme as returns on DSE tumble
2005-10-19 07:57:24
By Mireny john
With return on investments falling on the Dar es Salaam Stock Exchange (DSE), institutional and individual investors have quickly realised that moving their investments to the nacsent collective investment scheme, the Unit Trust of Tanzania (UTT) is the next best alternative, as they perceive it as less risky than stocks on the Dar bourse.
This is evidenced by the extraordinary performance of the Initial Public Offer (IPO) which invited Tanzanians to invest in units between May 16 and July 29 this year.
Records show that 102,753 investors responded positively to the offer, in the end mobilising Tshs.90.506bn, resulting in a huge oversubscription of Tshs.18bn.
Since UTT’s IPO offer, the turnover at DSE started performing badly with the rumours that some of the stocks were to start offering lower net returns on dividends following expiry of tax breaks offered by the government as part of the privatisation package.
The rush into less risky investment products such as UTT and not in stocks was also expedited by the government’s resolute determination to support small investors by providing a discount of Tshs.30 for every unit purchased.
The popularity of the UTT scheme,the first of its kind since liberalisation of the economy, is further evidenced by the trust which some financial institutions bestowed on the scheme. Several banks offered to lend cash to individuals and institutions intending to buy UTT units.
Well known by its semi-Kiswahili moniker as Umoja Fund, the huge IPO turnover is also partly the result of effective countrywide social marketing campaigns undertaken by UTT’s promoters.
Even pastoralists in remote areas like Arusha and Dodoma regions were reached through various communication channels, and absorbed the idea that wealth could alternatively be stored through other means more reliable than herds of cattle.
The strategic communication programs were in line with government policy to diversify ownership of its warehoused investment portfolios in privatised companies.
The UTT management has started handling Umoja Fund affairs by building mutual trust among financial market players.
This is obvious from the recent decision to refund investors whose IPO applications failed to sail through owing to oversubscription.
The time value of money has been taken into account, it having been realised that cash held since May could have been invested elsewhere with return.
This sort of mutual trust is an important asset, because more collective investment schemes will be developed in future.
As the first mutual fund, this exemplary managerial performance cements confidence for things to come, for the contributions, or payments made by the investors, would be pooled and utilised with a view to generate profits or income.
Management does this on behalf of the investors in a CIS. Investors do not have day to day control over the management and operation of UTT.
The UTT’s positive start-up provides a catalyst in future for establishing a more comprehensive collective investment fund portfolio containing diverse investment assets into which investors would buy for a relatively high return.
It is considered less risky as different assets have different returns on investment therefore a lower return is compensated for by a higher one.
Another African country, Ghana, has licensed eight investment schemes with a greater risk spread in mind.
Such a move would help in the diversification of investment portfolios.
The risks and prices of units would be lower, therefore affording the citizenry the opportunity to invest thereby reducing the amount of money outside the banking system.
Throughout the world of transition economies, collective investment schemes have been observed to be more liquid than stocks on the bourses.
If such huge sums of money are made available to the private sector, it would make it the real engine of growth.
It would also help in the promotion of the long term savings culture, presently lacking in Tanzania.
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