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  • Name : Sakshi Prayatna

    School: Lautoka Andhra Sangam College

     

    I declare that the work submitted is my own and any information borrowed I have cited in the footnote.

    Introduction

    I currently have $5,000 in my savings. Based on my parents’ advice, I am looking to invest in capital markets for better returns on my savings.

    I will start by defining ‘capital markets’, then look at what type of investments are traded under capital markets and the advantages and disadvantages of these investments.

    I will provide the makeup of my investment portfolio based on the principal of ‘not putting all your eggs in one basket’.

    Capital markets and makeup of my portfolio.

    “Capital markets are markets for buying and selling equity and debt instruments. Capital markets channel savings and investment between suppliers of capital and users of capital like businesses, government and individuals…. Capital markets include primary markets, where new stock and bond issues are sold to investors, and secondary markets, which trade existing securities.”[1] According to the Reserve Bank of Fiji, Capital Markets Annual Report 2010, in Fiji, the capital markets made up 13 percent of Fiji’s financial system. Although the capital markets in Fiji are still in its development stages, there is currently a rising debt market, equity market and managed funds industry. The debt market comprised 77.2% of overall capital markets, the equity securities market was 20.1% and the managed funds industry made up the balance of 2.7% as reported in the Reserve Bank of Fiji – Capital Markets Annual Report 2010.The debt market of Fiji is prevailed by bonds issued by the Fiji Government and the Fiji Development Bank.[2]

     “Diversification is defined as a portfolio strategy designed to reduce exposure to risk by combining a variety of investments, such as stocks, bonds… (etc.), which are unlikely to all move in the same direction. The goal of diversification is to reduce the risk in a portfolio…Diversification reduces both the upside and downside potential and allows for more consistent performance under a wide range of economic conditions.”[3] A simple example of diversification is provided by the proverb “Don’t put all your eggs in one basket”. Dropping the basket will break all the eggs. Placing each egg in a different basket is more diversified. An economic event is likely to affect one basket not all. An example of an undiversified portfolio is to hold one investment. This is very risky when there are market uncertainties like the 2008 Global Financial Crisis (GFC).

    Following the principal of having a diversified portfolio, my preferred investment is made up of Stocks traded on South Pacific Stock Exchange (SPSE), Debt Bonds, and Managed Funds.

    Firstly, I would invest in the equity securities market (shares) through the South Pacific Stock Exchange (SPSE). In selecting the listed companies to invest in, I have taken into consideration the growth rate, investment income distributed for the past years, the cost of investment and the risks associated. My investment choice is justified as follows:

    • Toyota Tsusho (South Sea) Limited (TTS) Buy 300 shares for $915 (300 x $3.05).Reasons for my choice is an increase in growth of the investment in one year period. The closing price for TTS share was $2.20 at 31 December 2013 and $3.05 at 31 December 2014. An increase of $0.85 per share in one year, is a substantial increase. The company paid three interim dividends in the 2014 totalling to 15cents / share in comparison to 8cents / share in 2013, an increase of 7cents /share in dividend income within one year. An increase in the earnings per share was $0.16 / share. In 2013 earnings per share was $0.37 and $0.53 in 2014. Dividends received are tax free and is exempt from capital gains upon sale of shares.[4]
    • Rice Company of Fiji Limited (RCF) Buy 400 shares for $1,160 (400 x $2.90). Reasons for my choice for investment in RCF is growth of the investment .The share price at 31 December 2013 was $2.30 and $2.90 at 31 December 2014. Growth of $0.60 per share shows stability of the company. RCF has paid dividend of $0.20 per share consistently over the 2013 and 2014 years. In 2012 a dividend of $.10 per share was paid. An increase of 50% in 2013. The earnings per share had risen from $34.29 in 2013 to $35.53 in 2014. The dividend are tax free and exempt from capital gain.[5]
    • RB Patel Group Limited (RBG) Buy 250 shares for $708 (250 x $2.83). Reasons for my choice was looking at the past trends in growth and rate of return. The price per share was $2.44 at 31 December 2013 and $2.83 at 31 December 2014. An increase of $0.39 a 16% increase reflects confidence in its performance and stability. Also over the last seven years RBG has maintained dividend of 14 cents per share. Tax advantages are tax free dividends and capital gains exemption.[6]
    • Amalgamated Telecom Holdings Limited (ATH) Buy 800 shares for $776 (800 x $0.97). “ATH Group grew by 4% taking revenue to $281 million. This is due to the strong and continued growth in Internet and broadband services across the key operating companies” as stated by Ajith Kodagoda – Chairman of ATH. This statement has appealed me to invest in ATH. The price as at 31 December 14 was $0.97 per share and $0.73 at 31 December 2013.An increase of $0.24 /share shows stability of the company. Current price of shares being $0.97/share is cheap. I believe the price would go up as the technology sector grows. The dividend yield at 31 March 2014 was 6.3% and 5.4% at 31 March 2013. An increase of 0.9%.[7] Tax free dividends and exemption from capital gains tax are beneficial.

    Secondly, I would invest in government bonds. “A Bond is debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate.”[8]  An example of a bond in Fiji is the ‘Viti Bond’ and is issued by the Government of Fiji. The issuer is the Government of Fiji and the investor is the general public. The Reserve Bank of Fiji is the appointed registrar of Viti Bond. I intend to invest $1,000 in Viti Bonds, being the minimum amount required to invest. Reason behind my choice is minimal risks. Because the bonds are issued by the Government of Fiji, there is minimal risk that interest will not be paid or I might not recover the money invested. The current interest rate for a 5 year term is currently 4%. Although the rate of return is not high (in comparison to dividends) but it is peace of mind for me that my $1,000 is 100% secured. Tax advantage of interest earned being tax exempt is attractive.[9]

    After allocating a total of $4,559 towards the above investments, the balance of $441 I would invest in managed funds. “The most common type of managed fund in Fiji are “unit trusts”. As at 31st May 2012, there are 4 RBF licensed unit trusts in Fiji, of which Unit Trust of Fiji and Fijian Holdings Unit Trust are locally managed while Hunter Hall (which is offered through Kontiki Stockbroking Limited) and BT Investor Choice (offered through Westpac Banking Corporation) are foreign managed funds.”[10] I intend to invest in the Unit Trust of Fiji. Reason being minimum initial investment amount is 100 units, therefore affordable. The entry fee is only 2% compared to 5% charged by other managed funds.[11] Dividend is paid twice a year and is tax free.

    Having selected the stock, bonds and unit trust, I will now explain how I will use the return from my investments. I live with my parents who fully support me. Utilising this opportunity I will reinvest all my returns, by opting for dividend reinvestment plans (DRP) and reinvesting in more shares instead of drawing cash dividends. Cash drawn can become tempting to spend on unnecessary expenditure. Similarly, I will reinvest interest earned on Viti Bonds. Distributions received from the Unit Trust of Fiji will also be reinvested to buy more units in the Trust rather than getting cash in my hand.

    Conclusion

    Based on my selected portfolio, my total estimated earnings for the first year will be approximately $265. After reinvesting, my second year earnings would be around $300 with subsequent growth in investments. I will use a team of professionals, who have the expertise and industry knowledge, to provide guidance on my investments.

    As my parents provide for everything, I will not draw any of the earnings but reinvest for further growth. It is my ambition to undertake an accounting degree at university. I will only cash in my investments in future if at any stage I require funds for my studies. Otherwise, I will let my money grow over the coming years.

    Words: 1482 words (including footnotes).

    [1] Source: Investopedia: http://www.investopedia.com/terms/c/capitalmarkets.asp

    [2] Refer: Reserve Bank of Fiji – Capital Markets Annual Report 2010

    [3] Source: Investopedia: http://www.investorwords.com/1504/diversification.html

    [4] Refer: https://announcements.spse.com.fj/ftp/news/021725427.PDF

    [5] Refer: https://announcements.spse.com.fj/ftp/news/021725522.PDF

    [6] Refer: https://announcements.spse.com.fj/ftp/news/021725490.PDF

    [7] Refer: https://announcements.spse.com.fj/ftp/news/021725470.PDF

    [8] Source: Investopedia: http://www.investopedia.com/terms/b/bond.asp

    [9] http://www.rbf.gov.fj/docs2/2014%20QA_Viti%20Bonds.pdf

    [10] http://www.rbf.gov.fj/docs2/RBF%20Article%20-%20Investments%20you%20can%20make.pdf

    [11] Refer: http://www.cmda.com.fj/indexf042.html?page=UnitTrustsMarket

     

    Name: Divneeta Divya Devi

    School: Tavua College

    DECLARATION

    I declare that the work submitted with this entry is my own and all references have been duly cited for.

    D.D.Devi

    CAPITAL MARKET INVESTMENT- A PATHWAY TO SECURE A BETTER FUTURE

    Money, one of the most powerful resources in today’s world, is the basis of human survival now. Gone are the days when people used to depend on nature in order to survive. Everything now revolves around money. Money is the driving force behind every individual’s life since ones birth. It is the main medium of exchange without which nothing is available in this modern world. Everything nowadays has a price tag be it water, electricity, clothes, food or any contemporary goods, everything has its own monetary value and as the span of time moves further, these values soar even higher. Many, overcome with the impulse to get every new good on the market spend inconsiderably and carelessly often resulting in bankruptcy. Therefore, it is essential to utilize this resource wisely and explore ways to save this important resource in order to secure ones future goals today. One effective way to achieve this is through capital market investment.

    A capital market is one in which individuals and institutions trade financial securities in order to raise funds that is in simple terms using ones existing money to earn more money. In Fiji, the capital market is managed and regulated by the Reserve Bank of Fiji. Currently there are three different types of capital markets operating in Fiji. These are; firstly, Equity Market also referred to as the stock market which allows the trading of shares of listed companies. The major stock market in Fiji is the South Pacific Stock Exchange (SPSE). In this type of market, shares are issued to investors’ normally ordinary people who become shareholders in the company and in return earn dividends out of the company’s profits based on the amount invested. (Reserve bank of Fiji, understanding the capital markets).  Currently in total now there are 17 companies listed in the SPSE market which offer different interest rates. Currently from the companies listed in SPSE, the highest interest/dividend rate is given by Future Forest Fiji Limited that is 7.28% (http://marketreports.spse.com.fj).

    Secondly, Debt Market/ bond market which includes bonds and hybrid products such as convertible notes and other interest bearing products issued by Government and companies to investors. These investors become lenders to the business and are paid interest on the debt securities they hold. An investor who buys a bond can expect to receive a return from three sources, the coupon interest payments made by the issuer, the capital gains (or capital losses) when the bond matures or is sold and, Income from the reinvestment of the coupon interest payments. (Bond Market, http://www.rbf.gov.fj). There are two types of bonds, Governmental Bonds and Nongovernmental bonds. Government bonds- the Reserve Bank regularly publishes information on yields and prices for different maturities and coupon rates. This information reflects recent bond issues and therefore provides an indication of the current value of a Government bond. Non-Government bonds – Corporate and other non-Government bonds are generally riskier than Government bonds so should really be giving you a higher yield than that of a similar Government bond. The yield can be estimated by adding a premium on the equivalent Government bond yield to reflect the extra incremental risk. The resulting yield can then be used to calculate the bond’s value i.e. the present value of the bond’s future cash flows. (a guide to issuing bonds, http://www.cmda.com.fj/)

    Thirdly, Managed Funds Market.  This includes the unit trust markets who provide ordinary investors the opportunity to easily diversify their investment portfolios across a variety of different investments. This is achieved through the pooling of a person’s funds with other investors. These funds are then invested in a variety of products, companies and sectors by a licensed fund manager. The returns paid to the fund manager from the investments they have made are distributed to unit holders as dividends. There are currently six licensed unit trusts in Fiji. These are, Colonial First State Income Fund, Colonial First State Income and Growth Fund, Colonial First State International Fund, Colonial First State Pasifika Fund, Fijian Holdings Unit Trust, Fijian Holdings Property Trust, Unit Trust of Fiji (http://www.rbf.gov.fj/).

    Unit trusts often offer two types of funds, income fund and income and growth fund. According to the Prospectus of Unit Trust of Fiji 2011-2014, an Income Fund is suitable for investors who want to earn Tax- Free* dividend income while seeking to preserve the value of their invested capital that is  unit prices are fixed at a par value of $1.00. In order to start this fund, a minimum of 20 units that is $20.00 is needed for a children investment plan which allows one to hold funds till the age of 18 while 50 units for an income plus plan which allows investors to hold their finds for medium –long term that is 12 months and above. An income fund has no entry fees, no exit fees and no switching fees however, it has a management fee of 0.5%. The dividends for this fund will be paid every 6 months and will be pro-rated at $1.00 per unit invested. Meanwhile, an Income and Growth fund is designed for investors who are willing to invest in medium to long time horizon with moderate tolerance for risk. Investors have an opportunity to earn six monthly tax-free dividend income (applicable to resident investors only) and realize potential growth from the unit holders’ capital fund.  Minimum opening balance is 100 units. Entry fee is 3% however there is no exit (withdrawal) or switching fee. Management fee of 1.5% is deducted from investment income. The fee is included in the unit price and is not charged separately. The unit prices are calculated on a fortnightly basis. (http://webmediafast.com/unittrust/income-growth-fund-2). The current unit price for entry is $1.46 and $1.39/ unit for exit. (Unit Trust of Fiji-Facebook Page).

    Out of all these capital markets, as a student it would be most preferential to invest in a unit trust market. With the given sum of money that is $5000.00 I would opt to invest $4000.00 in the unit trust market and keep the other $1000 to cater for current obligations and any unpredictable event(s) that may arise. As one, just about to cross the threshold of high school, I would prefer to invest my money in an income and growth fund as together with receiving dividends I would also be able to increase the value of my initial investment.

    Moreover, the reason I would choose to invest in this fund is because the benefits of this particular investment outweighs its risks. For instance the main risks of investing in this fund are, fluctuations in interest rates, drop in the rate of returns due to unexpected economic or political conditions or unexpected changes in the company’s internal operations, changes in exchange rates, lower repurchase price and changes in tax policies. While, its benefits include regular tax-free dividend income, realized capital gains as dividends, capital growth opportunities, reduction in investment risks through diversification, professional management, provision for sale of units with instant receipt of proceeds from the sale, affordability, compounding, access to overseas investment, investor protection and flexibility to switch to income fund with no fee. In addition this fund offers unrestricted withdrawals and capital growth (UTOF Prospectus, 2011-2014)

    Subsequently, with the money invested, one would have an extra source of income which would greatly help in times of financial need. As a student looking towards venturing into tertiary institutions, I would use my dividends to cater for my studies and other related expenses such as accommodation, books, projects and any such expenses that I may incur in the course of my education. Furthermore, with this money I would also be able to assist my family financially as well as contribute towards the education of my siblings and eventually as I join the workforce I could use the extra funds to satisfy personal wants such as getting a property or buying a vehicle.

    Consequently, capital market investment along with benefitting individuals also promotes economic growth. For instance, the capital invested by individuals act as the major source of income for most companies and government. This in turn encourages more employment and increases wealth including job creation through the creation of new businesses and expansion of existing businesses, and technological innovation.  With this expansion, more research and development take place. Many new items are added to the market and the country’s gross domestic product, (GDP) grows and as a result the standard of living also improves.

    Thus, capital market investment is indeed a productive market which is greatly beneficial to the entire Fijian economy as well as every individual therefore more people should be encouraged to invest in these markets as it will not only help resolve the problem of financial scarcity but would also help strengthen the economy of Fiji. Many new people will be able to get a job and many more will become financially stable. The state of poverty would also be reduced, infrastructure will develop there would be a better provision of essential services such as health and education and hence many more people will be able to secure a better future.

    (1500 words)

     

    Name: Upasna Shayan Chand

    Name of school: Ahmadiyya Muslim College

    Declaration: I Upasna Chand declare that the work I have submitted is my own.

    BE MONEY WISE-SECURING MY FUTURE GOALS TODAY

    This essay is based on the theme, Be Money Wise-Securing my Future Goals Today.  Based on my thorough research, understanding and synthesis of various definitions, the topic simply means – spend or invest your money sensibly now so that you can reap its rewards in the years ahead.  In this essay, I will discuss the term capital market investment, the types of capital market investment, the markets in which I intend to invest $5,000.00 and the reasons for choosing this particular capital market.  In addition, I will also explain the risks associated to this investment and my intentions on the ‘returns on the investment’.  The $5,000.00 was saved from small change that I occasionally received from my family past several years, including birthday gift from my grandparents. The key aim behind this investment is to attain maximum return with minimum risk so that the money can grow significantly after five years.  The funding will enable me start my own small exporting business which is my dream job, hence putting my money in the right investment is crucial at this stage.

    Capital market is defined as a source of financing used by a number of companies, corporations and government around the world for various purposes. Stock and bonds are the most famous capital market securities. Companies utilize capital markets to raise money for projects by issuing stock, bonds and short-term money market securities. There are the regulatory authorities in every country to supervise the capital market securities and their respective market.  In Fiji, the Reserve Bank of Fiji keeps a close watch on these organisations. People who invest in stock or shares are called share-holders whilst the ones who opt for bonds are called investors.

    There are two types of capital market – primary market and secondary market.  The primary market is that part of the capital market that deals with the issuance of new securities meaning that the securities are sold for the first time. Therefore, it is also called the new issue market (NIM). They are often issued by smaller, younger companies seeking capital to expand or modernise their existing business, but can also be done by government or large privately owned companies.

    The second capital market is called secondary market also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold, meaning it deals with the securities that were already issued previously in the primary market. The major stock exchanges are the most visible example of secondary markets.  The secondary market needs to be transparent and highly liquid in nature as it deals with the already issued securities. The resale value of the securities is dependent on the fluctuating interest rates.

    Another difference is that in the primary market, the companies collect funds directly from the investors whilst in the secondary market, the money earned does not go to the company instead it goes to the investor who sells the security.

    Stocks, or shares, represent an ownership interest in a corporation. Stocks or shares are two words but the distinction between the two is somewhat blurred, hence, these two words are interchangeably used. Companies usually divide their capital into small parts of equal value. This smallest part is known as a share. Companies usually issue shares to the public to raise capital.  For example, say a company wants to raise capital of $1,000.00 and sells shares at $1 and has 1000 shares. A shareholder pays $100 and acquires 100 shares that is 10% of shares.  If the company makes a profit and declares a dividend payout, the shareholder will be entitled to 10% portion of the dividend.  A shareholder must always keep in mind that dividend payout is not guaranteed and heavily reliant on the performance of the company. Shares are for perpetuity or as long as the company lasts. It is only their value that keeps on changing depending upon the performance of the company.

    Bonds are a form of long-term debt made by common people to a company and has a maturity period.  At maturity say after five years, the company has to repay the principal amount that was loaned.  Generally, the bond contract requires that a fixed interest payment be made every six months or yearly to the Bondholder.  Bondholders are issued with a certificate as evidence of investment in the company. Bondholders are first to receive their money back should the company dissolve.  Unlike shareholders, bondholders have no stake in the company except that they are entitled to interest from the company.

    1. After having a thorough understanding of the capital market investment and for safer investment, I have decided to put my money in both – bonds as well as in shares. As a benchmark, I have compared the returns against the fixed term interest rate of Westpac and note that banks pay a much lower interest rate compared to the returns on bonds and shares. The rationale for this is clear, putting money in the bank is much safer and less volatile thus the return is lower.
    1. I intend to invest $3,000 in Viti Bond for a term of five years.  The reason is because Viti Bond is governed by the Reserve Bank of Fiji (RBF) and RBF is considered to be making the best decisions for its stakeholders when it comes to financial matters.  Also, the interest rate is 4% per annum which is higher than Westpac fixed interest rate of 3.10% per annum as at 18/2/2015.  The Viti Bond pays interest quarterly – March, June, September and December. The return will be $30 interest every month which accumulates to $120 per annum.  In five years, total interest will be $600 provided the rates remain unchanged.  When compared to investment with Westpac, annual interest will be $93 per annum or $465 which is $135 less than Viti Bond.

    The other $2,000 I will invest in buying shares with Atlantic and Pacific Packaging Company Limited (APP).   The reason is because APP is listed by the South Pacific Stock Exchange (SPSE), hence is abides by certain rules and regulations of the country and as an investor I feel safe and will get tax exemption on the dividend.  From the 2014 financial report of APP, I have noted that the dividend payout remained at $3.50 per share for past six years (2009 – 2014).  This gives an indication that the company situation is stable and shares do not fluctuate.  The share price for APP on 18 February 2015 was $0.72c per share.  This means that with $2,000.00 investment, I will have 2778 minority shares from 7,553,723 total shares.

    Another risk that I have considered here is that by law or regulation of Fiji, any company is not required to pay a dividend which means that although APP’s dividend payout was consistent past six years, APP can suddenly decide to terminate or suspend paying any further dividend.  In mitigation, I am optimistic that the company will grow as the nation progresses.   Shares can be volatile but generally carry higher rewards

    1. At this stage, I have a high level plan in my mind about my small exporting business. My plan is to prepare, cook, vacuum pack, label, freeze, store seasonal vegetables and seafood ready for interested departing overseas visitors.  I believe that there is a huge market for this business because most of the locals who are now living overseas are crazy about eating Fiji produce and seafood.  My small shop will save their hassle and have certified and safely prepared and packed food ready to take in a plane. I will have these shops located near the airports so that customers’ storage problem is also alleviated.

    I intend to have $6000 from this investment after five years to commence business.  Funds will be utilized to purchase assets such as a chest freezer, cash register, packaging and labeling material, furniture and fittings and other miscellaneous items.  Funds will also be used to pay the suppliers for purchase of raw vegetables, seafood, mats, kava and other food that are commonly taken overseas by visitors.  In addition, cash flow will be required for expenses such as rental, salaries, power, gas, telephone and electricity.  This goes to show that money is the crucial element in any business and should be spent wisely.

    Hence, investing money in the right place does make sense for future success.  Returns from right investment give opportunity to the shareholders and the investors to make their dream come true.  Undoubtedly, all investment comes with some form of a risk.  Naturally, it is in the interest of the individual to do the necessary due diligence before putting their money in any investment. Professional help should be sought to clarify any doubts so that your hard earned money does not go down the drain but grows safely.

    (approximately  1483 words)