Percentage rates of investments: Interpreting them correctly

percentage rates of investments

Percentage rates appear to be popular in many financial publications. We see them in different forms- either positive or negative. As investors, some common areas we find percentage rates interesting are documents that deal with investment returns or profits. Many investors, as well as prospective ones, look out for rates quoted by financial institutions to make informed decisions. Unfortunately, most prospective investors get confused in the interpretation of these rates. Besides the misinterpretation of percentage rates, others naively compare rates associated with different investment categories. Their naivety reflects in the manner they query or make statements such as:

  1. “Which mutual funds have the highest interest rates?”
  2. “Which stocks have high interest rates?”
  3. “The interest rate of Mfund [money market fund] is higher than that of Epack [equity fund]”

One consequence of misinterpreting percentage rates is the disappointment that follows when lower-than-expected returns are made on an investment. During a chat with John (a follower of Sikasεm) a few days ago, I was not surprised when he expressed the frustration he had recently been through. He revealed:

“I nearly cried when 700 cedis in an account yielded only 4.57cedis.”- John Mensah

I understand many more people have had such an experience before. Yes! It is a very painful experience to go through. However, to avoid or reduce the impact of similar painful experiences, it would be worthy to study a few of the percentage rates we usually come across in investment products.


Annual interest rate

The most common investment products that make use of annual interest rates are Treasury bills and fixed deposits. The interest rates quoted on the various Treasury bills and fixed deposits are annually-based. That is, the return or profit earned on these investment products, when utilising the quoted interest rates, is for a period of one year (12 months). However, T-bill investments do not always mature in 12 months. For instance, the 91-day and 182-day T-bills mature after three months and six months respectively. Hence, the calculated interests need to be prorated (distributed) for the actual maturity periods. That is three months and six months for the 91-day and 182-day T-bills respectively.

To be clearer on this, let’s go through the sample calculation below.

     How to calculate Treasury bill interest

Let’s assume that you invest GH¢1000 at the current 91-day T-bill rate of 13.4700%,

Now, since the quoted interest rate (13.4700%) is an annual (12-month) rate, the total interest on the GH¢1000, after 12-months, would have been (1000×0.1347) = GH¢134.7


However, 91-day T-bill investment matures after three months. Hence the above total interest needs to be prorated for a three-month investment period.

Thus, the real interest to be earned on the GH¢1000 would be (1000×0.1347)/4 = GH¢33.675

Note that 3 months × 4 = 1 year. That is why you see the total (annual) interest being divided by 4

In a similar manner, the annual interest would have been divided by 2 if it were to be 182-day (6 months) T-bill investment.


Another means to estimate your T-bill or fixed deposit interest is to first distribute the calculated annual interest per each month and further multiply the monthly interest by the actual number of months the money stayed invested.  Using the same example above, the interest earned per month would be (1000×0.1347)/12 = GH¢11.225 Remember that there are 12 months per annum (year).

Now, since the money is being invested for 3 months (91-day T-bill), we multiply the monthly interest figure by 3. That is, (GH¢11.225×3) = GH¢33.675


Annual yield

Annual yield is the annual rate of return on an investment, taking into consideration the compounding effect of any intermediary interest earned. Annual yield is most often reported as the investment return on money market funds (a pool of fund invested in fixed income products). Managers of money market funds, while estimating the annual yield, assume that the funds would remain intact in the account for one year (365 days). For instance, the estimated annual yield of HFC Unit Trust on 10th May 2017 was reported as 20.31%. What this means is that assuming the funds in HFC Unit Trust remain intact from 10th May 2017 to 10th May 2018 (one year), the estimated rate of return would be 20.31%. That is, the value of the mutual fund would appreciate by 20.31%. However, since investors continue to deposit and withdraw from mutual funds, the funds are therefore not expected to remain intact throughout the full year. Thus, fund managers keep revising their annual yield on a daily basis to reflect the changes. For this reason, it may be difficult to precisely calculate the return on a mutual fund (money market) investment over a period.

Due to the effect of compounding, investment returns associated with money market funds may not be evenly distributed over the investment duration. Let’s assume that you had invested GH¢1000 in Databank’s Mfund on 12th May 2017. Annual yield of Mfund on 12th May 2017 was 19.88%. Thus, the estimated return (profit) on the GH¢1000 after one year would be (GH¢1000×0.1988) = GH¢198.8 However, the GH¢198.8 takes into account the compounding effects of intermediary profits that are reinvested by the fund managers. As such, it cannot be equally distributed by each of the 12 months. This implies that if the GH¢1000 stays invested for just six months instead of the 12 months, you cannot expect to earn half of the annual profit.

Once again, let’s go through another example using real historical data.


Table: Historical investment value of an Mfund account

Date Mfund value, GH¢ Monthly return, GH¢
30/09/2016 879.41 —–
31/10/2016 894.71 15.3
30/11/2016 912.03 17.32
31/12/2016 928.61 16.58
31/01/2017 945.83 17.22
28/02/2017 958.98 13.15
31/03/2017 971.49 12.51
30/04/2017 988.82 17.33


The table above shows the value of an Mfund investment account (a money market fund) over a seven-month period. Based on the investment values, the monthly returns are also calculated by subtracting preceding values from current ones.

Even though the fund manager (Databank) had estimated an annual yield of about 23% at the time, the returns (as seen in the table) were not equally distributed over the period- They differed from one month to another. For instance, November return of GH¢17.32 had increased from the October return of GH¢15.3. On the other hand, the return in January (GH¢17.22) had dropped to GH¢13.15 in February. Factors that account for non-equal distribution of Mfund returns include, but not limited to, compounding effect of intermediary profits as well as changes in interest rates of fixed income products during the investment period.


Year to date return (YTD)

Whenever we mention year to date, we refer to the period between the start of a calendar year and the present date of the same year. The beginning of the calendar year often has 1st January as the baseline. Year to date return therefore refers to the return or profit made so far, from 1st January to the present day of the calendar year. For instance, a year to date investment return of 10%, as of 30th April 2017, implies that from 1st January to 30th April 2017, a return of 10% had been made on the investment.

Year to date returns are usually reported on equity-related investment products such as the Ghana Stock Exchange (GSE), Epack investment fund, SAS fortune fund and HFC Equity Trust. Similar to the annual yield explained earlier, year to date returns can drop or increase from time to time within a calendar year. Again, year to date returns do not accumulate in a linear functional manner. In other words, they do not distribute proportionally along the calendar year. The mere fact that a year to date return after the first four months (30th April) was 10% does not necessarily mean that the return at the end of the year (31st December) would be 30%. This is due to price fluctuations on the equity markets. On every business day, equity fund managers recalculate their year to date returns based on the present prices of stocks.

It is also important to note that published YTD returns mostly affect existing shareholders than prospective ones. Now let’s have a look at the scenario below:

percentage rates of investments_scenario

From the scenario above, it is clear that the investor lacked understanding of YTD returns. This is a common mistake many prospective investors make when investing in equity funds. As I mentioned before, YTD returns mostly affect existing shareholders. Thus, the 45% the prospective investor noticed in September 2016 was a profit that had been ‘earned’ already by the existing shareholders of the equity fund. To accurately estimate his return, he needed to do that in reference to September 2016 since that was when he made the deposit. According to the scenario, the fund had lost 5% (45% to 40%) from September to December. Hence, the investor had actually lost part of his deposit.

In a similar situation, an existing shareholder who topped up his account in September 2016 would not enjoy profit on the additional deposit that was made in September. Nevertheless, he would enjoy the 40% return on his previous investment (prior to the deposit in September) if that investment had stayed in the equity fund from January to December 2016.


Comparing percentage rates

It is important not to compare percentage rates of different categorical investments. For example, the annual yield of HFC unit trust (a money market fund) as of 10th May 2017 was 20.31%. On the same day, the year to date return on HFC equity trust (an equity mutual fund) was 9.68%. It would be a big mistake to compare these two percentage rates and assume that HFC unit trust performs better than HFC equity trust. This is because the 9.68% return on HFC equity trust is only for the period of 1st January 2017 to 10th May 2017 while the 20.31% on HFC unit trust is a 12-month estimated rate.

On another note, it may not be appropriate to compare the year to date (YTD) returns of two different equity funds in the early part of a year. As stated earlier, YTD returns do not distribute proportionally along the calendar year. For instance, the YTD returns of SAS fortune fund and Epack investment fund, as of 11th May 2017, were 14.51% and 5.4% respectively. While the rate for SAS fortune fund is higher than that of Epack, it may be premature to conclude that SAS fortune fund performs better than Epack investment fund. This is because the YTD return of SAS fortune fund may drop while that of Epack can rise steeply before the year ends. Thus, a more appropriate comparison could be done at the end of the calendar year.

What is the BEST investment product in Ghana?

best investment product

After reviewing a few feedbacks from readers, I realise that majority of questions centres around ‘the most lucrative investment in Ghana’, ‘the best investment option in Ghana’, ‘the best mutual fund in Ghana’, and other similar phrases. In a nutshell, the majority would like a particular investment product to be recommended to them as the best to invest in. Frankly, I may be one of the very last people to recommend a particular option as the best investment product in Ghana. It is not the general perception of best investment product that I frown on. However, my issue has to do with the attribute that potential investors perceive as being the only characteristic of best investment products. Unfortunately, whenever the subject of best investment product crops up, the focus is solely on higher interest rates. This one-directional emphasis can lead investors into making wrong investment decisions that may subsequently ruin their finances. As Databank’s CEO, Mr. Kojo Addae-Mensah, stated in the latest edition of their “CEO’s MESSAGE” series,

It is the singular focus on rates that has cost so many people their life savings.”

We all recall what happened to the savings of clients who had been persuaded with high interest rates by some microfinance institutions in the country. Higher rates may be sweet but need to be followed with caution. There is an Akan proverb that goes like “Bͻnyono bata brɛboͻ ho”, which translates as “The liver is closer to the bile”. Indeed, juicy rates come alongside risks. I had stated in a post on this site before that:

“The risk that will take you to your grave is not worth it” Click To Tweet

Moreover, there is no one-fit-all investment product. What may be the best (and appropriate) for ‘investor A’ may not be the best for ‘investor B’. The financial needs and requirement differ from one investor to the other. Thus, the issue of finding the best investment product is subjective. Instead of focusing solely on rates (perceived to be the indicator of best investment products), there are equally other important factors to consider. These factors include, but not limited to, the company managing the investment product, their experience and how long they have been in operation, as well as the kind of businesses they invest the money in order to achieve those mouth-watering rates. Others include the age, risk tolerance and present financial circumstance of the investor. For instance, if you’re a parent with kids, you may be looking up for low-risk products than the one who is single and without dependants. If you have just begun your investment journey, you may wish to be conservative in your investment options, at least, for a while. This is unlike someone who already owns some investments and is willing to take further risks. Again, if you have ethical concerns, you may want to know where your money is being invested and thus select ethical investment products such as the Databank’s Arkfund.


Also, your investment goal (what you are investing the money for) depicts your options. Is it for retirement, to settle education bills, to buy a piece of land, to purchase a car or to send the family on a vacation? Definitely, the investment option for retirement (assuming you’re very young now) will be more of long-term investment products such as stocks and equity mutual funds. However, if you’re investing just for a family vacation, it would be better-off to incline your investment towards short-term products such as Treasury bills or even a savings account. It would be a mistake to invest most of your money that you don’t need for a very long time in short-term investment products, which pay low interests. On the other hand, you will not want to put your money in risky investments (even if the potential returns are high) if you’re saving for short-term goals. Imagine purchasing stocks with money intended for your next month’s rent to your landlord 🙂


As stated earlier, it is also necessary to look into the track record of managers of the investment products before finalising your decision. For instance, Databank has managed mutual funds for at least 20 years now, making them reputable among their peers. There are other fund managers who have been doing quite well even though they have not operated for that long. Firstbanc, for example, has consistently won awards with their Firstfund mutual fund (due to their high returns). However, they have not been in the system for that long in comparison with other peers. It is worth to be cautious when investing with unfamiliar financial institutions.

Finally, remember that it pays to diversify. In other words, don’t put all your hard-earned money in a single investment product. You can minimise your risk by choosing varying investment products. As a head start, you may refer to the link below for a simple guidance on choosing the right mix of investment products.

Investment guide for selecting right investment products

Treasury bill vs. mutual fund: “Instead of mutual fund, why not T-bill?”

treasury bill vs. mutual fund

Treasury bill is noted as one of the most popular investment products globally, mainly due to its simplicity and low-risk nature. However, the proliferation of mutual funds, particularly money market funds, has led to diversion of some investors from T-bills. Some questions still remain unanswered regarding Treasury bill vs. mutual fund investment. Such questions are similarly raised by well-informed investors as well as potential investors who wish to make good choices in their investment decisions.

Just about a week ago, I happened to have a discussion with one of Sikasεm’s followers. After almost an hour chat with Kenneth, he asked:

“If you were going to invest in an Mfund, why not just buy a treasury bill?”

The argument centred on the fact that managers of money market funds invest collected pool of money in fixed income securities such as T-bills. As such, won’t it be logical for investors to buy the T-bills rather? While Kenneth’s argument appears laudable, both T-bills and mutual funds have their own pros and cons that must be carefully reflected on (Note: ‘mutual fund’ as used in this write-up refers to money market funds in general).


  1. Treasury bill vs. mutual fund: Unlike T-bill, an investor can regularly top up the same mutual fund account

As it stands now, it is not allowed to top up an existing T-bill investment with additional funds. For instance, you may have invested GH¢200 in a 91-Day T-bill a month ago and wish to top up the existing GH¢200 with an additional GH¢100 to form a single investment of GH¢300. This would not be possible due to the differences in interest rates and maturity dates. In other words, the initial GH¢200 would be maturing at an earlier date with a different interest rate. As you may be aware, interest rates of T-bills keep changing week by week.

Let’s assume that the GH¢200 you invested a month ago had an interest rate of 18%, maturing on 14th April 2017. Now, interest rate of 91-Day T-bill has dropped to about 15%. Besides, any money invested in a 91-Day T-bill today would be maturing after three months. This makes it difficult to combine the subsequent GH¢100 with the GH¢200 invested earlier on. You may therefore have to invest any new fund (in this case, the GH¢100) separately. Thus, you would be having several T-bill investments for the various additional funds that would be maturing on different dates.

The situation is different for mutual fund accounts since you can top up with any amount at any time. An investor can make a regular contribution to his mutual fund account to suit his needs. A mutual fund may be therefore ideal for investors who choose to consolidate their fixed income investments in a single portfolio.


  1. Treasury bill vs. mutual fund: The yield on mutual funds general exceeds that of T-bills, even though slightly

Historically, the yield on mutual funds appears to be slightly better than that of T-bills. Detailed comparison of historical data of mutual funds and T-bills can be found in the post below:

Performance comparison of mutual funds in Ghana

There are a number of financial institutions that pay higher than the prevailing market rates. These institutions however require a minimum investment amount that outweighs the financial capability of many individual investors. As institutional investors, mutual fund managers are able to raise such minimum bids to earn the attractive rates. This is one of the reasons why mutual funds generally perform better.


  1. Treasury bill vs. mutual fund: Commissions are paid on mutual fund accounts but not on T-bills

Investing in T-bills come with no charges. Authorised dealing institutions are paid commissions by the Bank of Ghana (the originator of T-bills). Thus, the investor pays no further charges. On the other hand, mutual fund investment comes with varying fees and commissions. For details on investment fees and commissions, refer to the post below:

Investment costs in Ghana: Understanding the fees and commissions

Due to the fees and commissions charged on mutual funds, an investor may need to stay invested for a while in order to cover the charges and subsequently earn some reasonable returns. For instance, most mutual funds charge upfront fees of 1% of the invested money. Let’s assume that three investors decide to invest GH¢500 each in one of such funds. The fund manager would therefore charge each investor GH¢5 (that is 1% of GH¢500). Now, out of the three investors, one would like to withdraw his money after just a month. The other two investors decide to stay invested for one year. In effect, since each investor was equally charged GH¢5, the investor who pulls back earlier after just a month appears to be paying more in fees. In other words, he pays a fee of GH¢5 for just a month of investment while the others pay GH¢5 for the whole year.


  1. Treasury bill vs. mutual fund: T-bills are safer

As far as risk is concerned, both T-bills and mutual funds (money market funds) can be considered safe. Nevertheless, T-bills appear to be safer since they are issued by the Government. It is nearly impossible for the Government to run away with investors’ money. However, the same cannot be said of the various private financial institutions that manage the mutual funds.


  1. Treasury bill vs. mutual fund: Mutual funds may require less monitoring and tracking

Since mutual funds are constantly managed by experts, investors may not be required to keep track of matters such as changing trend of interest rates, which short-term instrument to buy, which ones are maturing, which ones must be rolled over, etc. Such monitoring and decisions are taken care of by the mutual fund managers.

T-bill investors, on the other hand, must have dedicated time to keep track of their investments and make the right buying and selling decisions. This is necessary, especially if they have different funds maturing on different dates. Even though some financial institutions send notifications to remind investors of their T-bill maturity dates, many others do not send any notification.  T-bill investors would therefore need to keep track of their investments’ maturity dates in order to give any further instructions to their banks.


  1. Treasury bill vs. mutual fund: Payments of interests on T-bills are simpler and well-defined

Since there is no maturity date for mutual funds, investors who wish to use their investment as a regular income source (eg. monthly payments) may always have to fill a withdrawal instruction form on a regular basis. This is however not the case for T-bills whereby the investor is paid the interest in his account upon maturity. T-bill investors need not to fill any additional withdrawal form unless they want to prematurely terminate their investment.

The defined interests on T-bills further make financial planning easier. Before you invest your money in a T-bill, you’re assigned a defined interest rate which does not change until the investment matures. This is beneficial for investors who want to plan ahead precisely.

The yield of mutual funds however changes in line with the prevailing interest rates of fixed income securities. If you’ve had taken a keen look at the annualised yields of mutual funds, you would realise that they fluctuate almost every day. For instance, since the beginning of this year (2017), the annualised yield of Databank Mfund has kept fluctuating between 22% and 20%. A defined annualised yield of mutual funds can only be known at the end of the financial year (31st December). Hence, investors whose planning are based on today’s rate may be slightly disappointed in the course of time.

Again, Treasury bill interests can be discounted, unlike mutual funds. What this means is that the interest calculated on T-bills can be given to investors in advance, even before their invested money matures. Discounted rates are slightly lower than the normal interest rates.


  1. Treasury bill vs. mutual fund: Mutual funds offer investors the opportunity to diversify their fixed income portfolio with smaller amounts

Proper diversification is one of the important characteristics of a prudent investment strategy. Since mutual fund managers invest across varying fixed income securities, investors, by default, have their investments diversified on their behalf. This is irrespective of the amount a mutual fund investor holds. For example, ‘investor A’ who invests GH¢100 will have the same diversification pattern as ‘investor B’ who invests GH¢500. Thus, investors with smaller amounts are equally offered the opportunity to diversify their fixed income portfolio.

On the other hand, most financial institutions demand some minimum amounts for T-bills purchase. For instance, information on Databank’s website shows that a minimum amount of GH¢500 is required for their T-bills purchase. This limitation may restrict low-income investors who wish to diversify. Let’s assume that you have GH¢500 but would like to purchase a variety of short-term securities comprising of 91-Day T-bill, 182-Day T-bill and probably a fixed deposit investment. With the minimum purchasing limit of GH¢500, your GH¢500 could only buy you a single short-term security. In effect, you may not be able to diversify as you had originally intended to.

3 financial institutions that promise high interest rates on fixed deposits

fixed deposits

As interest rates of Treasury bill continue to drop, finding alternative rates on the market seems laudable. Higher rates come with higher risks though. Therefore, investors must be cautious when making these decisions. A number of financial institutions claim to offer attractive interest rates on fixed deposits. Even though a few of these institutions openly publish their rates, the majority fail to publicly declare their supposed attractive interest rates. Of the few financial institutions that are open about their interest rates, three are listed below.

See also: Treasury bill investment: Choosing between 91-Day, 182-Day & 1-Year Note
 1. BOND savings and loans limited

BOND savings and loans limited is a non-bank financial institution which had been operated as a finance house since 2008. BOND acquired a savings and loans licence in its fifth year of operation and has since been mobilising deposits and giving out loans to the general public. Bond offers three main investment products. They guarantee to pay interest rates higher than that of Treasury bill on two out of the three investment products. These products are BOND fixed deposits (aka Daakye Dwetiri) and BOND Duapa.

The BOND fixed deposits are 91-day, 182-day and 365-day tenured investments with promising interest rates of (T-bill rate + 1 to 8%) depending on the tenure and the amount of invested money. In other words, the more and the longer you invest, the higher interest rate you are paid. The BOND Duapa is however a variable monthly investment that can be opened with a minimum contribution of GH¢100. The interest rates on BOND Duapa are fixed at (T-bill rate + 1%) for the 91-day, 182-day and the 365-day tenures. BOND savings and loans limited can be reached via their website at

See also: Ecobank introduces Treasury bills via mobile phones
2. New generation investment services (NGIS)

New Generation Investment Services (NGIS) Limited, an investment management firm, has operated for over a decade now. NGIS promises a premium rate of 2 to 5% higher than the prevailing Treasury bill rates for their fixed deposits. The minimum one can invest to earn these rates is GH¢500. NGIS can be reached on their website at

You may also like: Percentage rates of investments: Interpreting them correctly

 3. First Allied savings and loans limited

Since 1996, First Allied savings and loans limited has been providing financial services to the small, micro and medium enterprises. Their fixed deposit products come with negotiated rates (higher than the prevailing T-bill rates) depending on the amount and tenure of the investment.

Rates currently displayed on their website, as of today (10th January 2017), are *28%, *29% and *30% for the 91-day, 182-day and 365-day tenures respectively. In comparison, the prevailing Treasury bill rates are 16.2478% and 17.8796% for the 91-day and 182-day tenures respectively. Unfortunately, these published rates do not have any associated dates. Thus, it would be difficult to ascertain if their rates are up-to-date. A follow-up on their updated rates has still not yielded a response. First Allied savings and loans limited can be reached on their website at

A simple stock trading strategy for the risk-averse investor

simple stock trading strategy

There is no doubt that the internet is flooded with different stock trading strategies. At least, we have come across terms like active stock trading strategy, and passive stock trading strategy, to mention but a few. Whatever a stock trading strategy is, there are always risks associated with equity investment.

As investors, we all have our limits when it comes to the level of risk we can cope with. It may be low, medium or even high. One common investment risk is the possibility of losing some or all of the original investment. Losing part or all of an original investment is something that some section of investors cannot cope with. This category of investors may be classified under the risk-averse group.

The risk-averse investor prefers to invest with a very low risk. Many risk-averse investors would therefore look for low-risk investments such as Treasury bills and money market funds that may come with guaranteed profits. Unfortunately, these investment products do not yield high returns in the long term as compared to their high-risk counterparts such as stocks. Hence, the potential earnings of risk-averse investors are low.

As earlier mentioned, the internet is flooded with many stock trading strategies. However, it appears that no stock trading strategy considers the risk-averse investor in terms of investment risks. Thus, coming out with a simple and low-risk trading strategy may Continue reading “A simple stock trading strategy for the risk-averse investor”

Six financial habits to put you in shape

financial habits

When it comes to positive financial habits, the list can be indefinite. Among these are six common ones elaborated below:

      1. Save! Save! Save!

“Saving” is not a new financial jargon that must be strange to many of us. Nonetheless, this is the habit we mostly fail to live up to. Saving is one of the fundamental pillars of personal finance management. In fact, all the blah blah blah we hear about personal finance boils down to saving. Besides earning an income, you need to save periodically in order to fulfill your major financial obligations. In fact, not all moneys are meant to be spent- some need to be retained. The farmer, after harvesting his crops, does not consume all edible seeds. He retains some seeds for re-cultivation. Consider your income as edible seeds. You have the option to either consume (spend) all seeds or re-cultivate some in the soil (save or invest) for future harvest.

financial habits
Image courtesy of

One question that has been on the minds of many people is “how much must we save?” Answering this would vary from one individual to another, based on many factors. Personally, my advice is that you aim to save at least 20% of your regular income. If you can do better than this, why not go for it? The more you save (and invest), the earlier you accomplish your financial goals. Achieving this may require self-discipline and a bit of simple or frugal lifestyle. A common trick to increase your savings’ percentage is by budgeting close to a low income. In other words, live on a tight fixed budget as if you’re a low income earner. For instance, assuming you earn GHS 450, you may budget as if you earn GHS 350 so that the extra GHS 100 can be put in savings. This may sound challenging for many, especially if you’re new to the habit of saving. However, you can begin with a little, let’s say 5%, and gradually increase over time.

      2. Open at least one investment account

It’s a good habit to consistently save from your earnings, but it is more prudent to invest these savings afterwards. The benefits associated with Continue reading “Six financial habits to put you in shape”