What is a mutual fund?
A mutual fund is a collective investment scheme which specializes in investing a pool of money collected from investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.

One of the main advantages of mutual funds is that they give small investors access to professionally managed, diversified portfolios of equities, debt instruments which otherwise can be difficult to attain with a small amount of capital. The income earned though these investments and realized capital appreciations are shared with its unit holders in proportion to the number of units owned by them. 

What are the types of mutual fund?
There are basically two types of mutual funds:

  • Open-Ended Mutual Funds
  • Closed- Ended Mutual Funds
  • Open ended

    These are mutual funds which continually create new units or redeem issued units on demand. The unit holders buy units of the fund may redeem them on a continuous basis at the prevailing Net Asset Value (NAV). These units can be purchased and redeemed through the asset management company which announces offer and redemption prices daily.

  • Closed Ended

    A fund which is listed on an exchange such that there are a fixed number of units outstanding so that investors must purchase units from other investors via a market. 

Who regulates the mutual fund market in Trinidad and Tobago?

The Trinidad and Tobago Securities Exchange Commission (TTSEC) is the regulator of the local mutual fund industry and is very stringent in issuing licenses to fund management companies, especially in the case of Collective Investment Scheme. The Commission has three primary functions. This includes:

  • Registration of all actors  and securities that they offer
  • Monitoring and surveillance of the market
  • Enforcement of the legislation which governs the functioning of the industry

TTSEC ensures that legal documents affecting the fund's operations are in adherence. This includes: 

  • Prospectus/Offering document

    A mutual funds' prospectus describes the fund's goals, fees and charges, investment strategies and risks, as well as information on how to buy and sell units.

  • Trust Deed

    a formal agreement/ document used when mutual funds are set up as a trust. Such information includes the powers of the trustee and any restrictions on investment vehicles/ instruments.

  • Financial statements

    The statements show the performance of the fund in the outgoing period and help the investor evaluate how successfully the fund has achieved its stated objectives.

How are mutual funds structured in Trinidad and Tobago?
Most mutual funds in Trinidad are operated by an internal asset management dept. The exceptions are:

  • Home Mortgage Bank Mortgage Participation Fund is managed by the bank itself;
  • The Scotiabank internation's suites of funds are managed by an external, unaffiliated investment team.

Generally the structure is as follows:

  • A fund sponsor (usually a bank or large financial institution) establishes a mutual fund. They provide the seed capital and register the fund with the TTSEC.
  • The sponsor then appoints a fund manager (the asset management department) to select the investments.
  • The manager is responsible for the marketing and distribution of the funds, but this may be handled by another entity known as the distributor.
  • The fund must have a trustee, sometimes called a custodian, to hold the funds, pay distributions, and ensure that the fund's operations are in line with its stated investment objectives.

The sponsor and trustee are almost always registered companies. However, the manager and distributor are usually just subsidiaries. The TTSEC regulates the mutual funds themselves - requiring the filing of a prospectus, financial statements, and trust deed. The TTSEC regulates the overseeing manager.

What are the various categories of mutual funds?

  • Equity Scheme

    This is a fund that invests in equities more commonly known as stocks. The objective of an equity fund is long-term growth through capital appreciation, although dividends and capital gain realized are also sources of revenue.

  • Balanced Scheme

    These funds provide investors with a single mutual fund that invests in both stocks and debt instruments. This is aimed at providing investors a balance of growth through investment in stocks and of income from investments in debt instruments.

  • Asset Allocation Fund

    These Funds may invest its assets in any type of securities at any time in order to diversify its assets across multiple types of securities and investment styles available in the market.

  • Fund of Fund Scheme

    Funds of Funds are those funds, which invest in other mutual funds. These funds operate a diverse portfolio of equity, balanced, fixed income and money market funds (both open and closed ended).

  • Money Market Scheme

    This is among the safest and most stable of all the different types of mutual funds. These funds invest in short term debt instruments such as Treasury Bills and bank deposits.

  • Income Scheme

    These funds focus on providing investors with a steady stream of fixed income. They invest in short term and long term debt instruments like government securities like T-bills.

  • Aggressive Fixed Income Scheme

    The aim of this fund is to generate high return by investing in fixed income securities while taking exposure in medium to lower quality of assets also.

Why invest in mutual funds?

Mutual funds make saving and investing simple, accessible and affordable. The advantages include:

  • Accessibility

    Mutual fund units are easy to buy

  • Liquidity

    Mutual fund unit holders can convert their units into cash on any working day. They will promptly receive the current value of their investment. Investors do not have to find a buyer; the fund buys back (redeems) the unit.

  • Diversification

    By investing the pool of unit holders' money across number of securities, a mutual fund diversifies its holdings. A diversified portfolio reduces the investors' risk. It would be difficult for an average investor to buy varied securities to achieve the same level of diversification as is available with available investment in mutual fund.

  • Professional Management

    Investment managers evaluate all the opportunities that arise in the market, as this is their core business. They carefully examine them and then take decision for investing the mutual fund's money whereas it is not an easy task for an individual and even for corporate company if investing is not their core business.

  • Transparent and safe

    Your money is handed over to a professional, whose entire job is to keep track of markets and look out for the best opportunities for you.

  • Reduction on transaction cost

    With many people pooling in their savings, you get the advantage of the power of bargaining which reduces the overall transaction cost.