It is important as an investor to understand all aspects of the securities industry. Investors can consist of individuals, corporations, governments, pension plans or other entities. Individuals generally invest to obtain a financial return, save for retirement or achieve other financial goals. Despite the purpose, investors may share the same goal of generating high returns whilst minimising risk. In order to do so, it is imperative that investors understand the dynamics of  ifferent types of investment products and how their investments can be beneficial to them. In this week’s article, we discuss the Collective Investment Scheme (CIS) market also commonly known as the Mutual Fund market.

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Mutual Funds: Fixed NAV vs Floating NAV

As we embark on another new year, one of the more common resolutions is not only to increase our level of savings, but also to develop additional sources of wealth and revenue generation. The securities market presents many different options for individuals to achieve these goals with products such as equities, bonds and Collective Investment Schemes (CIS), the latter of which is the focus of this week’s article. CISs, which are generally known to the public as mutual funds, are investment vehicles, which allow for the pooling of investor resources to create a more diversified portfolio while taking advantage of the benefits of large-scale investment opportunities. In mutual funds, investors effectively own portions of the overall pool through units/shares, which are proportional to their contributions. 

The mutual fund manager utilises this pool of money to invest in securities congruent with the fund’s investment strategy. Investors can earn returns through distributions or capital appreciation depending on the fund’s performance. 

The mutual fund market has grown significantly since the Trinidad and Tobago Unit Trust Corporation was established, in 1981 . On this point, as at November 30, 2020 the market boasts of 69 mutual funds, collectively managing approximately TT$58.92 Billion in assets.

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Mutual Funds and the Christmas Season

Christmas is characterised by feelings of hope and joy, which are needed more so now due to the socio-economic impact of COVID-19 on families and households. The season is also marked by high levels of consumerism. This year’s preparation and observance of Christmas will require significant adjustment on the part of families because of the health and safety guidelines imposed and also due to the depressed spending capacity of consumers. 

At this time, most consumers review their options for the financing of activities related to the season. Funds can possibly be derived from savings, investments, loans or mutual funds. 

What is a Mutual Fund? 

A mutual fund is a type of investment that is made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by investment professionals registered with the TTSEC, who manage the pool of funds/assets and attempt to produce capital gains or income for the fund's investors. 

What is a Subscription and Redemption? Subscriptions occur when investors deposit money into their Mutual Fund account. Redemptions occur when investors withdraw money from their Mutual Fund accounts. 

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Mutual Fund Managers

Many investors often turn to mutual funds, also known as Collective Investment Schemes (“CISs”), as a means to save money for a variety of reasons. The term “save” is normally used when you accumulate funds in a bank account or a credit union. However, when you place your money in a mutual fund/CIS you are actually, investing. Saving is usually for a short-term, in a financial institution (bank) where you can easily access your money, with very little risk. Investing on the other hand, involves your money being invested in stocks, bonds and mutual funds – with the expectation that your money will work for you, i.e., will bring you returns. Investments are usually held for the long-term, not as easily accessible and involves some level of risk. With investments, over time, you can either make a gain, suffer a loss or remain with what you put in. There is risk involved. 

A mutual fund/CIS allows for the pooling of investor resources to create a more diversified portfolio and take advantage of the benefits of large-scale investment opportunities. Investors in mutual funds/CISs effectively own portions of the overall pool through units/shares, which are proportional to their investments/contributions. The mutual fund/CIS manager is responsible for managing the pool of resources. This is done by conducting market research and investing in securities which corroborate with the mutual fund/CIS’s investment strategy. For example, if the fund’s investment strategy is focused on energy products then the investments would be in assets aligned with the energy sector. This week’s article will focus on the CIS Manager, their responsibility and importance. 

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Market Conduct - What is expected from Registrants?

We are already into the second month of the year, and persons may at this time be implementing their financial goals. One way to reach those financial goals may be through investing in equities, debt securities (such as bonds) and mutual funds. This week, we focus on the types of market conduct that any prospective investor should expect from persons who are conducting securities-related business in Trinidad and Tobago. 

First, any person or entity that seeks to conduct securities-related business (investing) on your behalf must be registered (i.e. a registrant) with the Trinidad and Tobago Securities Exchange Commission (“TTSEC”) pursuant to section 51 of the Securities Act, 2012 as amended (“SA 2012”). For the purposes of this article, whenever we refer to a registrant it’s one registered under section 51(1) of the SA 2012. The prescribed registrant categories include: 

  1. Broker-Dealer; 
  2. Investment Adviser; 
  3. Underwriter; 
  4. Registered Representative; 
  5. Sponsored Broker-Dealer; and 
  6. Sponsored Investment Adviser. 

A person seeking to invest will likely speak to a Broker-Dealer (a person who conducts securities transactions on behalf of others, primarily clients, or his own account) or an Investment Adviser (a person engaging in, or holding himself out as engaging in, the business of providing investment advice). 

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