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Collective investment schemes: A trigger for wealth creation and growth

Dickson Ssebuya

While releasing the state of the economy report last month, the Minister of Finance, Planning and Economic Development, Matia Kasaija noted massive growth in Funds or Assets Under Management (AUM) by Collective Investment Schemes (CIS) that had surpassed the Shs1 trillion mark. Kasaija placed the figure at Shs1.15 trillion as at end of March 2022 up from Shs566 billion a year earlier (March 2021). This figure supersedes the Third National Development Plan (NDP III) target of Shs1 trillion by the year 2025 not just by Uganda shillings 130billion, but also three (3) years way ahead of schedule. 

This growth has been registered gradually and progressively in the last few years with figures standing at Shs388.5 billion during the same period in March 2020. In 2021, deep into the Covid-19 pandemic period when most of the economic activities were at a standstill, this figure continued to go up, closing the month of March at Shs566 billion. The most recent figure as of March 2022 has shown that investment with CIS has more than doubled to now Shs1.15 trillion. What this means is that investors have a lot of confidence in the Ugandan capital markets industry. This is because you would have expected that during the uncertainty and the hard times of the Covid-19 pandemic when investors were either withholding or withdrawing their funds from a number of investments/ventures, many of these investors instead chose to bring this money into the capital markets and invested it through CIS. This also means that CIS are a safe avenue towards which funds can be channelled and give a decent return that is paid out in form of interest.

And mark you, this Shs1.15 trillion are funds from only 32,988 Ugandans who have chosen to invest their savings in the Ugandan capital markets, particularly through CIS, up from 26,936 a year before. So, if we were to take a fraction off about 45 million Ugandans, this represents a miserly proportion of 0.0007 per cent. Imagine how much money we could raise for this country from you and me, even if we targeted just 1 per cent of our total population. Using the current investment average of Shs24 million per CIS account holder and 450,000 potential CIS investors (representing the 1 per cent of the total population of Uganda), we could be looking at potentially mobilizing Shs10.8 trillion in savings domestically. One would argue that this figure looks overly ambitious. So assuming a lower target of just 100,000 CIS accounts, you would be looking at more than doubling the current figure to at least Shs2.4 trillion in savings. 

Taking into account the fact that this money is mostly invested in interest bearing financial instruments such as government securities, certainly the CIS investors stand to gain a decent earning on their investment currently averaging about 10-11 per cent. This means that rather than lose value being kept dormant on a bank or mobile money account, these funds or savings are able to grow and create wealth while withstanding any inflationary tendencies. Assuming a modest return of 10 per cent to CIS account holders for the current Shs1.15 trillion, wealth to the tune of Shs103.5 billion will be created and distributed to unit holders, which finds its way back into the economy for consumption as well as savings. 

One would say, but for me I would rather invest my money in the construction of apartments which is not an issue. But then again, if your investment in this property is going to be Shs200 million for you to be able to earn rental income of Shs1 million per month (an effective yield or return of 6 percent per annum), you would be looking at 200 months in terms of payback period (close to 17 years) to be able to recover your initial investment. And that’s minus the property maintenance cost as well as the tax on rental income. 

On the contrary if you invested this same Shs200 million in a CIS at 10 percent per annum which is basically Shs20 million interest income per year, in 10 years you would have earned Shs200 million. This is a clear demonstration therefore that whereas there is nothing wrong with investing in property, CIS present a decent avenue to not only create but ultimately grow your wealth. With just Shs100,000, CIS present investors with the opportunity to pool their savings together with other investors, hence creating a large pool of funds that is invested on their behalf by a professional manager commonly known as CIS Managers and these are licensed by the Capital Markets Authority of Uganda. 

The writer, Dickson Ssebuya, is the director Research and Market Development, Capital Markets Authority of Uganda