The Gazette 1990

july / augu ST 1990 ket crash there are some funds which at least guarantee to give you your money back at the endof three or five years. In recent years the bulk of the funds available to Irish investors were offered by life insurance companies. But now the exchange " . . . exchange controls have been eased . . . . [and] a growi ng number of foreign funds are open i ng up for . . . Irish investors". controls which made it illegal to invest in funds abroad have been eased as we move towards the free EEC market of post 1992. The result is that a growing number of foreign funds are opening up for investment by Irish investors. Irish investors can now invest in unit trusts based abroad and also in foreign investment trusts. These investment trusts are basically companies quoted on the stock market whose sole function is to management investment. The increased competition has caused Irish companies to take a fresh look at what they have on offer. Many insurance companies and other financial institutions hereare now offering unit trusts in addition to the insurance linked funds. They are similar products but with essential and important dif- ferences. But first the similarities. Both insurance linked funds and unit trusts are pooled investments of the type mentioned above. The bank, insurance company, or other financial institution simply man- ages the fund on behalf of the individual investors each of whom has so many units in the total fund. In Ireland the managers generally charge an annual management fee and also impose a spread between "offer" and "bid" prices for the units. That simply means that at any one time there is usually a five per cent spread between the price at which units are sold to investors and the price at which they are bought back from investors want- ing to cash them in. So if you invest now and want to cash in in a hour's time you have lost five per cent of your money. Some funds offer units at a dis- count to large investors while others operate a smaller spread and a higher annual management fee.

GAZETTE

U n i t L i n k ed F u n ds Some individuals prefer tomanage their own investments but it re- quires time and expertise. Paying someone to manage your own personal portfolio could prove very expensive. A more attractive option is the investment fund in which individuals can pool their invest- ments and jointly hire professional management. It is not easy - few, for instance, predicated that the IRE would so quickly move down to 90p sterling when it was up at 98p recently. Indeed most commentators were forecasting a return to parity.

But many investors are able and willing to take a risk in order to secure a somewhat greater return than is available on a deposit account and they for long re- cognised the advantages of pooling their investments with others of like mind in order to spread the cost of managing their portfolio. The in- surance linked funds were for long the most popular investment medium. The insurance element has been very small - so small, in fact, that many investors in these

Such pooled funds are nothing new. They first became formalised in Ireland in the guise of insurance linked funds managed by life insurance companies. They still remain the most popular of the pooled funds but they now face a lot of competition from other similar options. Prompted by some tax changes and the easing of exchange control, the range of options has grown rapidly over the past year. In addition to a growing number of insurance linked funds, investors have now a choice of domestic and overseas based unit trusts and investment trusts. There can be no certainty in choosing the best product. But the range of choice can be limited by consideration of tax, personal attitudes to risk, and some view on the likely future performance of various types of investment. The taxes applied to the various types of pooled investments differ - which is best depends on an individual's circumstances. Some types of funds carry a higher risk than others and, even within a certain category of fund, the risk element can vary greatly. The . . choice can be'limited by consideration of tax, personal attitudes to risk and . . . likely future performance riskier funds may, in fact, perform better but some investors can not afford to take that risk and somay have to be content with a more certain but potentially smaller return. And the third element in making up the choice is a view of the investment potential of dif- ferent funds. That must be based .on a subjective view of investment trends both at home and abroad. That includes a view of likely changes in exchange rates.

By Colm Rapple

funds possibly do not even realise that it exists. It is not really there as a selling point but rather be- cause it was easier to set up such funds under the aegis of an insurance company. Such unit linked funds are essentially pooled investments. Each individual investor's money is pooled with that of the other in- vestors and the whole fund is managed on their behalf by professional managers. Each investor has so many shares - or units - in the fund. The units go up, or down - in value as the value of the underlying investments go up and down. Irish companies have been offering a wide range of funds for many years. There are funds solely invested in property; others invested in shares; others in government funds. Then there are managed funds with investments in all of those areas. Within the category of managed funds there are some which invest in riskier ventures than others, thereby offering the possibility of greater return but matched with a greater risk of loss. And in response to the fears generated by the 1987 stock mar-

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