Why investors should consider equity funds

Business Beat spoke to Stanlib Investment Company’s Regional Head of Business Development (East Africa), Mr Felix Gichaga, on why investors should consider equity funds as a vehicle for investing in the Nairobi Securities Exchange.

What is an equity fund?

Equity funds invest principally in a well-diversified portfolio of stocks. They are suitable for individuals thinking long term and with a medium to high-risk profile.

For instance, the Stanlib Equity Fund provides an investment opportunity for individuals who require long-term capital growth and provides investors with good protection against inflation.

How does this kind of fund work?

Individual investors’ funds are pooled together to purchase a portfolio of equity securities. It provides you with the opportunity to purchase a well-diversified spread in a recognised stock exchange both locally and offshore. An investor receives a unit based on the value of the securities and the amount invested.

For example, if on a particular day the net asset value of a unit is Sh100, an investor investing Sh200,000 would receive 2,000 units.

What categories of investors are eligible to invest through equity funds?

They are suitable for investors who require undivided participation in a well-diversified portfolio of equity instruments, and require potentially high returns over the medium to long term.

Why should an individual put his or her money in an equity fund rather than invest directly in the NSE?

First, investors get the benefit of professional management. Equity funds are run by experts experienced in the investment arena and they assess portfolio holdings on a daily basis.

Second, it is easy and affordable. Collective Investment Schemes (CIS) are a convenient and low-cost way of investing in markets, which investors would otherwise find difficult to access.

Finally, you also share in the rewards of the stock market without running the risks of direct investment, such as, high transaction costs and commissions, lack of investment expertise and non-diversification.

How are equity funds a game changer when it comes to investment in stocks?

The main reason is that you are able to invest in a larger variety of stocks than you would on your own. The funds are managed by a professional team of fund managers and a research team that has the ability to make timely informed decision as to when to buy and exit a particular stock counter.

For instance, the Stanlib Equity Fund has been able to diversify its investment portfolio by not only participating in the NSE, but also in other counter equities within the East African region. Additionally, we allow investors to start enjoying their investment growth without charging a fee on the principal amount.

Equity funds are also highly liquid, which means clients are able to withdraw funds at short notice without incurring penalties.

What is the minimum amount of money one can invest in an equity fund?

It depends on the fund, and it can be anything from Sh10,000, as it is for Stanlib, to Sh1 million.

Why has the idea of equity funds not gained mass appeal?

I think there has been a general lack of awareness on how these funds operate, and there are potential investors who are afraid of losing their capital.

Do equity funds protect investors from the price volatility associated with stock trading?

Speaking for Stanlib, we offer investors something we call free switching. This means if your risk tolerance and return expectations change, you can switch to another unit trust fund managed by Stanlib using the accumulated fund value as capital.

Would you say equity funds are the most viable avenue for investing in stocks?

Yes, I believe they are.

janyanzwa@standardmedia.co.ke