No doubt, Nigeria's financial sector has been in tremendous growth over the last two years. That doesn't, in any way, suggest that we now have a financial market that matches up to even the acknowledged emerging markets, like India. It only says we have moved forward, considering where we had been. So much more remains to be done.
Obviously, one aspect of that advancement is in the significant growth of the capital market. Lately too, the mutual funds sub-sector appears to have come alive. More funds are being structured by fund managers, giving the investing public an additional channel through which to invest. Investment interest is visibly rapidly growing in our economy, but that simply means increasing numbers of potential investors who may know little or nothing about how to invest successfully. The introduction of more managed funds is definitely one way to aid such newbie investors. We have devoted some space, on this website, to mutual funds because of their potential to help even the lowest income-earners achieve relative financial success investing in financial assets. Our section on managed funds has gone through the ABCs of the subject, explaining what unit trusts (mutual funds) are, how they operate and what value they offer, especially to small or less-informed investors.
The ARM Aggressive Growth Fund
Mutual funds in our lexicon are called unit trusts. The ARM Aggressive Growth Fund (AGF), currently on offer, is one of such funds. Coming from the stable of ARM Fund Managers, already well-known for their quite successful Discovery Fund, the AGF is a fund that even seeks to dare more. The ARM Aggressive Growth Fund IPO opened on Monday, October 29, 2007 and will close Wednesday, December 5. That is pretty close now. The offer is at a unit price of N20 and a total offering of 50,000,000 units. An intending investor is required to take up, at least, an investment of N50,000 - that is for 2,500 units.
What this Fund Offers
The ARM AGF is an open-ended unit trust. More importantly, it is a fund that has defined its primary objective as the quest for capital growth. That objective has implications, which you, as investor, must understand.
Your financial investments will yield returns either in income they generate or capital appreciation that results. However, there are investments that will not provide the latter. Such investments, like bonds, treasury bills, banks deposits, have a fixed principal sum and only yield income in interest or discount received at purchase. In many cases, their principal is relatively safe, but the investor cannot receive more than the principal and the income it yields. In those cases, it is largely possible to compute, even ahead, what will be earned and what the investor finally gets out of the investment.
Stocks are however different. The possibilities are much wider and more captivating. Your capital can easily disappear, if you invest in the wrong stocks, just as there is no real limit to what your capital growth could become. Your stock investment can also grow several fold in value, even over a relatively short period. These are what give stock investing its higher risk (and higher returns) potential. It presents a more dynamic situation, opens up more opportunities and equally poses increased risk to capital.
The Aggressive Growth Fund clearly says it will play substantially in equities (that is, stock) investment. That is obviously why it is aggressive, daring. With projected 80% - 100% investment in equities, the fund is shooting for high growth potential, albeit, with increased risk exposure. It is therefore a fund for the adventurous, accelerated wealth-seeking investor. If you are looking to grow wealth relatively fast and you are willing to take more risk (meaning, simply, that if it doesn't go well you will cope), that is the kind of investment to put your money into. Though the fund, understandably, does not provide any guaranteed rate of return, its objective is decidedly to achieve higher than market average returns. If, on he other hand, you are looking for low-risk, highly safe investment assets, either on account of advanced age, personal risk preference or because you cannot 'toy' with the investment capital, perhaps this will not be the ideal investment for you. Other investment instruments that offer higher safety of capital but no opportunity of the capital gains potential of stocks or a more diversified fund, will be better-suited for a fairly risk-averse investment personality.
Mitigating Factors
Granted the defined risk profile of the fund, it must be understood that the fund managers have had considerable experience in fund management. A track record of success is therefore available. That will certainly come into play. As an investor, you also have the opportunity to diversify your investment through other channels. The AGF may therefore represent part of the growth-based portion of your overall investment portfolio. You only need to understand that the drive for growth is at a potential cost: higher risk. If the stock market suddenly goes gaga, it won't be the fault of the fund manager, but you will be more affected than when invested in a more balanced fund. The latter, unfortunately, will not offer a promise of the kind of capital growth that is possible with this fund, if the market trends well. So, it's a balancing act. Well, now, you could possibly make a better investment judgement.
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