Understanding the Cowrywise Platform
In my last blog post, I talked about my cowrywise investment in mutual funds and how I basically sold it after a few months and basically earned 1,000 naira from a 30,000 naira investment. Well to be fair I did not fully understand what I was investing in and all I saw was an investment platform and I just shoved my money ignorantly without understanding how I can get my returns from the investment.
For those who are curious about the platform and wish to invest in it, well this blog post is just for you, and for those who aren’t planning on investing in cowrywise you should still tune in, you’ll never know what knowledge you’d get from this blog post.
I actually plan to explain this platform’s investment option to the best of my knowledge and hopefully it provides you with better insights on how you can invest with it to earn an effective return. Maybe at the end of this blog, I may just reinvest some money into the platform.
Ps: This platform also provides a savings plan; however, that is not the purpose of this blog post.
First of all, you should know that the cowrywise platform just provides you with access to fund managers, and the company itself is not the one managing your funds for you. Also for the sake of explanation, I would be displaying pictures of some mutual funds, and this is just for educational purposes.
Now that’s out of the way, what is a mutual fund?
A mutual fund is a type of investment that uses money from investors to invest in shares, bonds, and other types of securities. The fund manager decides how to invest this pool of money and is usually given a fee for his services.
You can buy units of a mutual fund, which gives you access to a diversified portfolio of assets managed by someone knowledgeable in investments. The average mutual fund holds over a hundred different securities, which means mutual fund shareholders gain important diversification at a low price.
For instance, consider an investor who buys only Google shares before the company has a bad quarter. He stands to lose a great deal of value from his investment because all of his money is tied to one company. On the other hand, a different investor may buy shares of a mutual fund that happens to own some Google share. When Google has a bad quarter, her loss is significantly less because Google is just a small part of the fund’s portfolio.
Now I guess you’re thinking “how does one gain from a mutual fund?”
Well, it’s quite simple, from capital appreciation and returns from the securities invested, in terms of dividends and interest received from interest-bearing securities such as loans/bonds. Note that your return is based on the proportion of the amount you invested in the mutual fund. Well, I’m not a fund manager so I can’t give you the full breakdown of this appropriation.
Now we have an understanding of what mutual funds are, we can go to the types of mutual funds available on the cowrywise platform, which are naira mutual funds and dollar mutual funds. The main difference between these two types of mutual funds is that for the dollar mutual funds you invest with dollars. But not to worry if you do not have a dollar account you can also invest in naira, but your money would be converted to the dollar equivalent using the platform’s fixed exchange rate.
The cowrywise app divides its mutual funds’ option into three; conservative, moderate, and aggressive. Note that the classifications for each category of mutual funds are not based on their year to date returns (YTD returns), so don’t be surprised if you see an investment that has a low YTD return but grouped under aggressive, the classification in my opinion is based on the riskiness of the securities the fund managers invest in, as well as other factors.
So what’s YTD return you may ask? It’s simply the amount of profit or loss realized by an investment since the first trading day of the current calendar year. They are used by investors to assess the performance of the mutual fund. Though this is a good indicator of the performance of the mutual fund, it does not really provide much information.
I actually prefer to look at the price history chart to see the price movement of this mutual fund, because it provides me with a glimpse of the fund’s capital appreciation over the relevant period. Also, don’t forget to take note of when you would receive your returns. Some funds pay annually or quarterly, and for some funds you earn via capital appreciation.
Also, check what investments are in the mutual funds: you won’t be given a full list of what securities are in the fund, but a summary; so it’s up to you to decide which fund suits your investment needs. Also don’t forget to check the suitability section. If who they are describing is not you, omo please pass along, because you’d get frustrated if you are not getting the results you anticipated.
There is also a download prospectus option below every mutual fund, but the prospectus is never really available. However, I advise you always check if it’s available.
PS: A prospectus is a document that provides detailed information about a mutual fund. It includes information about the fund manager’s objectives and practices, the types of securities within the fund, as well as information about charges and fees. Basically a more detailed description of the summary information provided on the cowrywise platform.
I guess you’re now wondering “did she invest in another mutual fund?”
Well, not yet but I’m planning to. I’m actually saving up for this right now.
