Creating Investment Clubs in Zambia

 

In the past seven to ten years, Zambia has witnessed an explosion of investment clubs. Friends, family members, colleagues at work, former schoolmates and a host of individuals with a common bond have come together to save and invest, as a means of securing their financial future.

 

According to the Zambia National Investment Club Association-ZANAICA, there are more than 8,000 investment clubs in Zambia. Investment clubs have sought to create wealth for members by investing in a variety of asset classes. Investment clubs typically invest in real estate, transportation and agriculture. Apart from helping in the cultivation of a savings culture among Zambians and providing financial security for members, investment clubs can be an economic driver by providing long term capital for businesses, if soundly managed with the necessary investment know-how.

 

There is an old saying that cautions on the risk of putting all your eggs in one basket. Applied to investment clubs, to minimise risk to their members’ savings, it is imperative that they invest widely in different types of assets. Investment clubs need to give consideration to the purchase of financial assets by investing in Collective Investment Schemes (CIS) which invest across different other financial assets, selected by a professional manager, rather than the investment clubs’ leadership (who are typically comprised of busy full time employees). Diversification through such financial assets can contribute to growing members’ wealth in a regulated environment.

 

A CIS involves several investors contributing money into a common pool, with the funds collected being invested by a professional manager. 

 

Currently, the five CIS managers are managing approximately K.45 billion on behalf of Zambians. In Kenya and Morocco, the total size of assets under management by CIS’s are approximately 1 per cent and 39 per cent of Gross Domestic Product (GDP). Respectively. The equivalent would be assets of between K.1 trillion and K.39 trillion. This therefore presents a huge growth opportunity.

 

What is in it for Investment Clubs?

An investment in a CIS is an indirect investment. The CIS manager invests on behalf of the investment club which saves the club members the hassle of undertaking research on what and where to invest. With investment club members most likely being employed elsewhere or engaged in other personal income generating activities, a passive investment such as a CIS saves them the trouble of continuous monitoring of their investments. CIS managers have knowledge and skills to carry out research and allocate funds in investments that will yield higher returns while minimising risks. Additionally, the CIS managers handle the day to day administrative details of the fund on behalf of the investors, lowering the administrative burden on the members.

Additionally, CIS can invest in a wide variety of assets such as shares, treasury bills and treasury bonds. Investing in all these assets might be an uphill task for a single investment club, considering the huge amount of money required. The CIS can provide exposure to several asset classes without necessarily requiring a high capital outlay from an investment club as funds are pooled from several other investors (both individuals and groups) with a similar investment objective. This helps in diversification of investments, which is good practice in maximising earnings for the investment club and minimizing risk.

CIS units when held can be converted with great ease to cash. An investment club only needs to complete a sale request and submit it to their CIS manager, with the proceeds being credited to an investment club’s account, usually within four days. This is a relatively easy investment to turn into cash when the need arises, compared to investments such as land that might take a lot of time and effort before the proceeds are received.

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