Raiffeisen Aval -> Questions and Answers

Questions and answers

1. What is mutual fund?

It’s an institute that pools together investor’s money generally to make a profit by purchasing stocks and bonds and other investment vehicles that are publicly traded in Ukrainian financial market.Investors’ participation in such a pool requires buying an investment certificate of the entire fund and, thus, providing diversification of their money.

The whole portfolio of each fund is managed by professionals who buy and sell securities on behalf of the investors.

2. What are basic types of mutual funds?

What fund to choose depends on your financial goals, time frame and risk tolerance.

-Stock or equity funds - invest primarily in shares, sometimes even focus on a specific industry or sector. There are many types of stock funds that offer various degrees of risk and return potential.

-Bond funds – these funds invest money firstly into municipal, corporate and government bonds. They are designed to receive stable income by investing money into instruments with guaranteed interest rate.

-Balanced fund – these funds invest both in stock and bonds to balance the aggressive growth potential of equities with the relative stability of bonds.

-Money market funds – invest in securities with fixed incomes, which mature in about one year or less. Such instruments have minimal risk and their returns are a bit higher than those of deposits or saving accounts.

So, when you spread your money into different asset classes (equities, bonds, and deposits) it’s called asset allocation and it helps to minimize your risk level and enhance the possibility of receiving higher income. Your investment adviser will help you to create personal well-balanced portfolio that includes a mix of different types of mutual funds.

Also investor can choose among open-ended, close-ended and interval mutual funds:

-Open-ended mutual funds – sell and buy-back shares at investors wish;

-Interval funds – provides buy-back of shares at a certain time periods, which are defined by the prospectus;

-Close-ended funds – shares are not redeemable until the fund is liquidated or reorganized.

3. Three investment strategies:

-Conservative strategy – conservative investor aims to preserve capital, receive stable investment income and low-risk orientation. Such strategy orientates on beating inflation over the long-term and is particularly sensitive to short-term volatility.

-Moderate portfolio – it is less sensitive to short-term volatility than conservative asset allocation and is interested in preserving capital and receiving steady higher income together with bearing higher risk level.

-Growth portfolio – invests primarily in shares of Ukrainian companies and provides high returns in long-term horizon with high risk tolerance.

4. How is interest earned?

-Appreciation – your fund shares increase in value, when securities from it’s portfolio increase in total value, that could be defined at the end of trading day.

-Capital gains distribution – could be achieved when investment managers of the fund sell securities at a profit.

-Dividends – shareholders may receive dividends (quarterly, annually)

5. What are typical expenses of investing into mutual funds?

-To buy and sell fund’s certificates investor may pay brokerage fees (usually they varies from 1% to 2%)

-Each investment company takes management fee, 1-3.5% (usually a charge paid for portfolio management). Typically a certain percentage of assets under management

-Expenses for opening securities and current/card accounts (if shares are in non-documentary form)

-When selling investment certificate back to the asset management company, investor should pay 15% income tax

6. What is minimal investment amount?

Minimal investment amount starts from the value of one investment certificate.

7. What is minimal period of money investing?

It all depends on the fund’s type. You may buy and sell every working day the certificates of open-ended funds. Interval funds have certain periods which are defined by AM Company. Close-ended funds provide redemption only with fund’s liquidation or reorganization. Also every fund strategy proposes a recommended investment period for you to help with your choice.

8. What means NAV (net asset value)?

It’s a value of fund’s assets under management. Usually it is calculated at the end of a trading day.

9. Can I receive a guarantee of fund’s performance?

No, as it is stated by the majority of investment funds: past performance is not a guarantee of future positive results.

10. What are the main reasons to own mutual funds?

-Highly-qualified money management (funds are managed by experienced professionals, who take decisions only with detailed, extensive analysis, so you don’t have to spent sleepless nights by making your own research and looking after each trading movement, you just should call to your investment adviser at any time and receive clear view on your investment portfolio and market situation);

-Diversification (it’s the way to protect your money from market downturns, cause they are diversified amongst different companies from different economy sectors and are not concentrated in one industry);

-Growth potential (it is historically proven fact that long-term investment provides greater income, than a six-month deposit or certificates);

-Liquidity (today you can buy or sell fund shares with a minimal time spending, shares are redeemed on your phone call)

11. Regular investments – the way to avoid market lows?

If you invest the same amount of money on a regular basis (ex. monthly) is really convenient way to benefit from market fluctuations. Cause, as market goes down or up your regular investment will buy some shares at a lower price and some at a higher price, so, it means that you could own more shares at a cheaper price than to buy them all in one day.

12. What documents are required to make an investment?

-Passport

-Identification code

-Securities account number

-Application form

13. What are the time frames for money redemption?

Payment is usually made within 7 days of the receipt and acceptance of the withdrawal request.

14. Has an investor an opportunity to decide what securities should comprise the fund he invests in?

No (if it is not individual portfolio management). Investment managers form each fund’s portfolio and control it.

15. What is the legal environment?

-The law about institutes of mutual investment

-The law about securities and stock market