Category Investments

Fund classification - too much information?

20 January 2006 Angelo Coppola

The objectives behind the process and the benefits are fairly obvious, says Turpin. In December 1996 there 100 funds, total there are over 1000 funds, so there is a need for some classification.

So what is the logic behind it and do people/investors really want to know?

On a more basic level people need to understand what they are buying and also to understand why the performance is what it is. The classification should also assist investors in making their selection. Investors should know what the objective of the fund is and what sectors are being targeted.

Turpin maintains that the classification also assists investors when and if they wish to compare the performance of various funds.

And while fund managers prepare the mandates for submission the discretion as to which category these funds are placed in rests with a technical committee within the ACI.

The first level of classification is on a geographic level domestic, foreign or worldwide. The next level is an asset class breakdown equity, fixed interest, real estate and asset allocation.

The third level gets more specific, per asset class, with each sub sector grouped according to business areas and sectors. Added to which investors can then allocate portions of their investment to categories that suit their risk profile, age and personal circumstances.

So where does the apprentice investor start?

Turpin recommends that for those with a low risk level, the money market funds and income funds are the place to start. For those investors that believe they can tolerate more medium risk, the general equity, prudential and flexible funds.

Again it all depends on the individual investors risk profile and professional assistance should be sought from a registered financial advisor, to determine what the individuals risk profile actually is.

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