MUTUAL FUNDS ON POLISH MARKET :

COMPARISION

Bartosz Ostajewski

PGiSP IV rok

1. Introduction

Let's suppose you're just getting started as an investor and have 1,000 zł to invest and you have three important goals you want to achieve. First, you don't want to lose your money in a risky venture so you want security, like that found in a certificate of deposit or other fixed income investment. But you also want to make the most money you can, so you want the prospect for growth potential, too. Finally, since you don't have the time or knowledge to actively manage your money, you want professional money management -- occasionally diversifying your investments into promising new opportunities. That sounds like a very good plan, but where can you invest your money and have a chance to meet all three criteria?
Certificates of deposit and other fixed income investments offer security, but often with low rates of interest and a fixed potential for growth. Individual stocks may carry greater potential for growth, but 1,000 zł isn't a lot to invest and if you put it all in one stock, you risk everything if it performs poorly. And, brokers and investment advisors can offer you advice and money management, but at a price -- you pay for their services, which reduces further the amount you have available to invest.

So where can you invest your money? The answer is to invest in mutual funds.

What is a Mutual Fund?

A mutual fund is a company that pools the money of many investors - its shareholders - to invest in a variety of different securities. Investments may be in stocks, bonds, money market securities or some combination of these. Those securities are professionally managed on behalf of the shareholders, and each investor holds a share of the portfolio - entitled to any profits when the securities are sold, but subject to any losses in value as well.

For the individual investor, mutual funds provide the benefit of having someone else manage your investments, take care of recordkeeping for your account, and diversify your money over many different securities that may not be available or affordable to you otherwise. Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds.

A mutual fund, by its very nature, is diversified -- its assets are invested in many different securities. Beyond that, there are many different types of mutual funds with different objectives and levels of growth potential, furthering your chances to diversify.

Types of Funds

• Equity Funds - invest in shares of common stocks.

Aggressive Growth Funds

What they invest in ?

These funds seek maximum growth of capital with secondary emphasis on dividend or interest income. They invest in common stocks with a high potential for rapid growth and capital appreciation.
Because they invest in stocks which can experience wide swings up or down, these funds have a relatively low stability of principal. They often invest in the stocks of small emerging growth companies and generally provide low current income because these companies usually reinvest their profits in their businesses and pay small dividends, if any. Aggressive growth funds generally incur higher risks than growth funds in an effort to secure more pronounced growth. These funds may invest in a broad range of industries or concentrate on one or more industry sectors. Some use borrowing, short-selling, options and other speculative strategies to leverage their results.

Who they are suitable for ?

Investors who can assume the risk of potential loss in value of their investment in the hope of achieving substantial and rapid gains. They are not suitable for investors who must conserve their principal or who must maximize current income.

Examples

DWS POLSKA TFI S.A. DWS POLSKA FIO TOP 25 MAŁYCH SPÓŁEK

87 % of assets in stocks

BPH TFI BPH FIO AKCJI
83 % of assets in stocks

International/Global Funds

What they invest in ?

International funds seek growth through investments in companies outside Poland. Global funds seek growth by investing in securities or stoks indexes around the world. Both provide investors with another opportunity to diversify their mutual fund portfolio, since foreign markets do not always move in the same direction.
The best way to invest abroad is through mutual funds, rather than direct investment in a foreign security. Most investors are unfamiliar with foreign investment practices and currencies and may not have a clear understanding of how economic or political events can affect foreign securities. An investor in an international mutual fund doesn't have to worry about trading practices, recordkeeping, time zones or other laws and customs of a foreign country -- that is all handled by the fund's money manager.
International and global funds can invest in common stocks or bonds of foreign firms and governments. Many international funds invest in a particular country or region of the world.

Who they are suitable for ?

While international and global funds offer opportunities for growth and diversification, these types of funds do carry some additional risks over domestic funds and should be carefully evaluated and selected according to the investor's objectives, timeframe and risk profile. Because most international and global funds are considered to be aggressive growth funds or growth funds, investors must be willing to assume the risk of potential loss in value in the hope of achieving substantial gains. They are not suitable for investors who must conserve their principal or maximize current income

Examples

On polish Market there is only one example

Torrus Funds -  Merrill Lynch Protected Global Index Fund

First international fund on polish market starts it's investments on 25^th of april 2005

• Fixed-Income Funds invest in government or corporate securities which offer fixed rates of return.

What they invest in ?

The goal of fixed income funds is to provide high current income consistent with the preservation of capital. Growth of capital is of secondary importance.
Income funds that invest primarily in common stocks are classified as equity income funds (see next listing). Those that invest primarily in bonds and preferred stocks are classified as fixed-income funds. These funds invest in corporate bonds or government-backed mortgage securities that have a fixed rate of return.
Since bond prices fluctuate with changing interest rates, there is some risk involved despite the fund's conservative nature. When interest rates rise, the market price of fixed-income securities declines and so will the value of the income funds' investments. Conversely, in periods of declining interest rates, the value of fixed-income funds will rise and investors will enjoy capital appreciation as well as income.
Fixed-income funds offer a higher level of current income than money market funds, but a lower stability of principal. They are generally more stable in price than funds that invest in stocks. Within the fixed-income category, funds vary greatly in their stability of principal and in their dividend yields. High-yield funds, which seek to maximize yield by investing in lower-rated bonds of longer maturities, entail less stability of principal than fixed-income funds that invest in higher-rated but lower-yielding securities.

Who they are suitable for ?

Fixed-income funds are suitable for investors who want to maximize current income and who can assume a degree of capital risk in order to do so. Again, carefully read the prospectus to learn if a fund's investment policy with respect to yield and risk coincides with your own objectives.

Examples

Skarbiec TFI - SKARBIEC - DEPOZYTOWY

30% of assets in T- bills and 70 % in corporate bonds

• Balanced/Equity Income funds invest in a combination of both stocks and bonds.

What they invest in ?

Equity income funds seek high current yield by investing primarily in equity securities of companies which pay high dividends. Unlike interest payments on bonds, dividends on equity securities can change as companies raise or lower their dividends. Since yield-oriented stocks are more volatile than comparably rated fixed-income securities, equity income funds offer less stability of principal than fixed-income funds. Balanced funds are more evenly invested in equities and income securities.

Who they are suitable for ?

Balanced and equity income funds are suitable for conservative investors who want high current yield with some growth.

Examples

SEB - SEB 1 FIO Zrównoważonego Wzrostu

12,15 % of assets in Bonds 43,78 % in T- bills and 38,72 % in stocks

BPH Fundusz Inwestycyjny Otwarty Stabilnego Wzrostu

• Money Market Funds for high stability of principal, liquidity and income.

What they invest in ?

For the cautious investor, these funds provide a very high stability of principal while seeking a moderate to high current income. They invest in highly-liquid, virtually risk-free, short-term debt securities. They have no potential for capital appreciation.

Because of their short-term investments, money market mutual funds are able to keep a constant share price; only the yield fluctuates. Therefore, they are an attractive alternative to bank accounts. With yields that are generally competitive with -- and usually somewhat higher than -- yields on bank certificates of deposit (CDs), they offer several advantages.

Who they are suitable for ?

Money market funds are suitable for conservative investors who want high stability of principal and moderate current income with immediate liquidity.

Examples

Skarbiec TFI - SKARBIEC - GOTÓWKOWY 100% of shares in bonds

DWS POLSKA TFI S.A. - DWS POLSKA FIO RYNKU PIENIĘŻNEGO

• Specialty/Sector Funds

What they invest in ?

These funds invest in securities of a specific industry or sector of the economy such as health care, high technology, leisure, utilities or precious metals.

Because such funds invest primarily in one sector, they do not offer the element of downside risk protection found in mutual funds that invest in a broad range of industries. However, the funds do enable investors to diversify holdings among many companies within an industry, a more conservative approach than investing directly in one particular company.

Sector funds offer the opportunity for sharp capital gains in cases where the fund's industry is "in favor" but also entail the risk of capital losses when the industry is out of favor.

While sector funds restrict holdings to a particular industry, other specialty funds such as index funds give investors a broadly-diversified portfolio and attempt to mirror the performance of various market averages. Index funds generally buy shares in all the companies composing the S&P 500 Stock Index or other broad stock market indices.

Asset allocation funds move funds among a variety of markets and instruments in response to the fund manager's view of relative market prospects. They are broadly diversified and sometimes have higher management fees since there may be a variety of securities in the portfolio. These funds are suitable for investors who can tolerate a moderate to high degree of risk, are seeking capital appreciation and to whom dividend income is secondary in importance. And whatever the instruments, social responsibility funds apply moral and ethical as well as economic principles in the selection of securities.

Who they are suitable for ?

Specialty funds are suitable for investors seeking to invest in a particular industry who can monitor industry performance regularly and alter investment strategies accordingly. Investors must be willing to assume the risk of potential loss in value of their investment in the hope of achieving substantial gains. They are not suitable for investors who must conserve their principal or maximize current income.

Examples

Pioneer PEKAO TFI S.A. - Specjalistyczny Fundusz Inwestycyjny Otwarty Telekomunikacji Polskiej (SFIO TP)

Mutual Funds are becoming more and more populat type of investment but still only 20 % of people who have savings invest in Mutual Funds. These people are well educated and wealthy so that gives them an advatage over others. Such simple investment instrument as Investmen Fund shuold be promoted as an effective alternative for bank accounts and bank investments.

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