The value of assets by Collective Investment Schemes in Uganda almost doubled to 732 billion Shillings in 2020/2021 as more Ugandans embraced the industry. This represented an increase of 88.4% from 388.5 billion shilling at the close of the previous financial year, according to the annual figures at the Capital Markets Authority, CMA.
Collective Investment Scheme is an investment product that allows an investor to pool savings with other investors, creating a large pool of funds to be invested on their behalf by a professional CIS manager. The CIS Manager is a licensed firm that markets and sells CIS units to potential investors.
The role of the CIS manager is to decide, within the rules of the trust and the various regulations, which investments are included within the unit trust.
In a related area, Fund managers also take charge of the assets of larger or institutional schemes and are licensed by the Capital Markets Authority. The CMA attributes the growth in assets under management to increase awareness of CIS among local investors, which has seen more Ugandans open CIS accounts and save through them.
Additionally, fixed income assets like bonds, which make up the bulk of AUM experienced growth in the period under review.
The total number of investor accounts held by CIS managers at the end of the financial year stood at 20,668 compared to 8,904 investor accounts at the end of the previous financial year.
This growth in AUM and clients can be attributed to increased awareness of Collective Investment Schemes among local investors, through the public education campaigns, which has seen more Ugandans open CIS accounts and save through them.
The CMA also thinks that the diversification of benefits, as well as tax exemption for distributions made to unitholders, have helped to increase interest in CIS among the investing public.
On the other hand, the total AUM by fund managers licensed by CMA stood at 4 Trillion Shillings at the end of the financial year 2020/21, having grown from 3.5 trillion at the end of the previous financial year.
The increase in AUM can be partly credited to the growth in retirement benefit schemes’ member contributions and an increase in the value of underlying assets.
However, its contribution remains low at 3.1% of GDP, compared to Kenya where it contributes 35%.
“The low fund managers’ AUM to GDP ratio for Uganda can be attributed to, among other things, the slow progress of implementing pension reforms. The liberalization of the pension sector would help attract Ugandans, to save with different pension schemes”, says CMA Chief Executive, Keith Kalyegira.
He adds that this initiative would help mobilize local capital, which could be deployed for productive use in the capital markets.
Over the last five years, the AUM has risen by 67.4 percent annually from 55.6 billion.
The contribution to GDP of the Collective Investment Scheme Assets Under Management remains very negligible having doubled to 0.6 percent last year from 2019/2020. In comparison, at the end of last year in Kenya, the contribution was 2.2 percent and 64.7 percent in Morocco.
This indicates that these countries mobilize a significant amount of savings through CIS relative to the size of their respective economies.
“As part of interventions to stimulate further growth of the CIS, CMA will enhance the current public awareness programs on CIS products, work with stakeholders to improve distribution, and develop a promotion strategy for CIS products,” says Kalyegira.
In terms of areas of investment, a large portion, about two-thirds of the assets, was held in Umbrella Funds, which targets interest-bearing securities like treasury bills, treasury bonds, fixed deposits with approved financial institutions, and other fixed-income securities.
The dominance of the umbrella funds is partly because they provide higher returns compared to the other funds. This was followed by the Money Market funds at 18.2 percent.
Money market funds invest in highly liquid, near-term instruments like cash, cash equivalent securities other debt securities.
Another 11.3 percent of the funds went to Fixed Income products.
Government Bonds accounted for the majority of the investments because of their relatively low risk and assured returns.
This has steadily grown its dominance of the investment destinations since 2017/2018 when it accounted for just 21 percent.
The interest is based partly on the safety of government bonds plus the decent returns offered by the government bonds compared to treasury bills and fixed deposits.
Additionally, the unfavorable returns on the stock market or equities have also driven investors to invest in Government securities, according to CMA.
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