Q&A with CMMB Securities

Q. My daughter will start primary school in September, but I’m thinking way ahead. What would be the best instrument to save for her secondary school life (buying books, etc) and also higher education if needs be? 

Vishanti Freeport  

A: Thinking about these major future expenses from now is prudent. The best investment to accomplish this saving would be an annuity-type instrument. This is simply an arrangement where you put a fixed amount per month for a number of years into an investment plan. The amounts you put in grow at a high rate of return since the investment is over a long period of time. The investment also grows quickly as it benefits from the power of compounding, ie the periodic interest earned is added on to the original principal and reinvested. Also the amounts you put in are tax deductible and so you derive tax savings from the investment. One thing to note is that if you take money out of these investments before they mature, you are likely to incur penalties/taxes.

Therefore, the investment imposes a discipline on the investor to ensure the future savings are derived. In your case, you have two major events: the entrance of your child into secondary school and then possibly tertiary education. Your horizon is thus about seven years from now and then another in about 14 years. So you can engage in two plans for the different horizons.  Each investment can be structured so that at maturity it pays a lump sum, which can be used to pay down on upfront costs such as tuition, uniforms, books, etc while the monthly payments can be used for rent and other ancillary and living expenses. These investments are available in many varieties from a number of financial institutions. Shop around to get the best deal possible. 

Q: There are US Dollar Mutual Funds, but why don’t we see pounds Sterling or Euro Mutual Funds?

Roy, Point Fortin 

A: In Trinidad and Tobago US Dollar Mutual Funds are more popular than pound sterling or euro mutual funds. This can be attributed to several factors including: US dollars are more easily available to investors, the US dollar is relatively stable to the TT dollar and is less expensive than Pounds or Euros. Also, the Euro is a fairly new currency and investors may not be as confident about using this currency for investment as any negative fluctuations may result in translation losses. Furthermore, US Mutual Fund providers appear to be more aggressive in selling their products in our region. So, if you wish to invest in a pound or euro mutual fund, it may be best to contact an international investment advisor who can inform you of the historical performance of funds as well as any tax implications that may arise.

Disclaimer for Articles:
All information contained in this article has been obtained from sources that CMMB believes to be accurate and reliable. All opinions and estimates constitute the author’s judgement as of the date of the article; however neither its accuracy and completeness nor the opinions based thereon are guaranteed. As such, no warranty, express or implied, as to the accuracy, timeliness or completeness of this article is given or made by CMMB in any form whatsoever. CMMB and/or its employees or directors may, where applicable, make markets and effect transactions, or have positions in securities or companies mentioned herein. Neither the information nor any opinion expressed, shall be construed to be, or constitute an offer or a solicitation to buy or sell.