The money market: the best place to invest

The Ghanaian Capital market has been developing every day, and it is good to know that the other side of the investment coin (the money market) is very rewarding compared to other economies on the African continent.

Money market trading involves trading low risk securities which are usually short-term, unlike the capital market. Most people perceive this market as less rewarding since it is a low risk market. But in a developing country like Ghana, where Treasury bill rates are above 20% and other low risk rate securities are becoming good investments, what else can you think other than to venture.

Out of GHC8,388,427,713 of funds under management in Ghana's fund management industry, only 17.6% was invested in the capital markets -- with 73.6% in the money market. This should tell you even professional fund managers have great faith in the money market.

Let us now look at the various short-term securities in the Ghanaian investment community and how to take advantage of them.

First is the Treasury bill, which is a product of the Bank of Ghana on behalf of the government of Ghana. It involves lending your money to government at a fixed interest rate. This rate is fixed and there is very little or no risk at all when it comes to payment. The Treasury bill is in the form of 91-day bills, 182-day bills or the 364-day or 1-year note. Each of these bills have separate fixed interest rates and mature after some days -- after which government will repay the principal plus the interest on it to the investor. Most commercial banks and brokerage houses in the country offer this investment on behalf of the Bank of Ghana. It is safe and short-term.

Some things you should know about Treasury bills before investing in them:

Know that an investor in T-bills lends his money to government at a fixed rate for either 91, 182 or 364 days.

Know that when it matures government will repay the amount borrowed, plus the agreed interest rate.

Know that you can only purchase T-bills through a licenced bank.

Know that there's no limit as to how much one can buy. It's all about your pocket.

Know that the investor pays nothing as transaction cost.

Know that you may take your interest/discount upfront.

Know that you can roll-over the principal and take your interest at maturity.

Know that you can roll-over both the principal and interest at maturity

Certificate of Deposits (CD)

Another investment in Ghana is the Certificate of Deposits (CD). This investment is a financial document showing that a person or organisation has a specified sum on deposit at a bank, usually for a set period, which comes with an interest rate. Most large companies in Ghana invest in this and very few individuals get the chance to invest in this because it involves very high amounts.

Fixed deposits are another form of investment in Ghana offered by most commercial banks at attractive rates. They are safe and good for low risk takers or investors. Most people also consider savings accounts of the various commercial banks as an investment option - obviously, not in my books. In Ghana, for instance, banks offer relatively attractive interest rates on the accounts of money savers; hence people prefer that to other investments.

Investors must note that these short-term securities are especially good for low risk takers, but must be understood properly. These are not good for all investment goals, especially those targetted at creating wealth. Most of the time people use these investment options to maintain the value of their money over some time.

Another great short-term investment option to consider as an investor is mutual funds. There are a number of mutual funds that are in the market. Short-term Mutual Funds is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in short-term securities such as Treasury bills, CDs and so forth. Each shareholder or unit holder participates proportionally in the gain or loss of the fund.