What benefits can a fund manager provide to a retail investor?

[size=13.3333px]a. Some of the benefits of a fund manager to a retail investor are:i. The expertise provided in managing the wealth is more when it is managed by a fund managerii. The retail investor does not need to track the portfolio alwaysiii Fund managers provide better understanding of risk and


Advantages of Managed Funds

Managed funds clearly have their advantages, though it is questionable whether the average investor is familiar with these benefits.

Fundamentally, the main benefit of professionally managed funds is that they provide access to an investment that offers numerous investing opportunities that the individual investor would otherwise not have been able to access.

Additionally, the wide variety of managed funds available ensures that the personal requirements of each individual investor may be met. Whether high risk/high capital growth investments or the low risk investment that provides consistent income over a period of time, managed funds offer solutions for almost every investor.

Main advantages include:

• Diversification of risk
• Professional management
• Buying strength
• Access to International markets and investments
• Convenience
  

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Explain and illustrate the risks and possible returns from an investment in the money
market given the 90-day BBSW is currently 4.75 per cent.

Ans:- Bank Bill Swap Rate is also known as Bank Bill swap reference rate is used as a benchmark interest rate for pricing or calculating of Australian derivatives and securities in particular floating rate Bonds. In other words in Australia Bank Bill swap rate is used in the financial market as an interest rate for the valuation of Australian dollar securities which is used by the financial institutions to borrow money and to determine short term floating interest rates. This Bank Bill swap rate is managed by Australian security exchange.

Bank Bill Swap Rate(BBSW) is a type of interest or base rate for debt financing which is similar to London Interbank Offered Rate (LIBOR).

Bank Bill Swap Rate is the average of all the bank bill rates which is supplied by the Banks for various maturities. There is also a Risk premium attached to the BBSW. Risk Premium is basically added to compensate or reduce the risk of the securities as compared to the risk-free rate which is usually government bonds.

Bank Bill Swap Rate (BBSW) + Risk Premium will give the floating rates on securities i.e return.

BBSW + Risk Premium = return.

Risk Premium which is attached to the Bank Bill swap rate is usually very less i.e 5 to 10 basis points but it goes very high during the crisis like in the financial crisis of 2008 it has exceeded to over 300 points.

Risk of BBSW - If the Bank Bill Swap Rate is high then it tells us that there can be credit risk or default that may occur. As per the Australian security exchange the Bank Bill Swap rate today i.e 1.0300 for 1 month, 1.0100 for 2 months, 0.9730 for 3 months. But as per this question, there is a 90-day BBSW and is currently 4.75% which is usually high which means it reflects there is a high risk in the investment.

Return - As far as the return is concerned if the risk premium is high then the return(i.e floating rate) will also be high. That means high risk will lead to a high return.

90-day BBSW = 4.75%

Following are the risks from investing in the money market:

i. Default risk

ii. Credit rating downgrade risk

iii. Reinvestment risk

iv. Risk of interest rate going up

v. Basis risk

vi. Inflation risk

Following are the risks from investing in the money market:

a. Locking investment at high interest rates of 4.75%

b. Fixed returns for investment corpus

c. Safety of investments

d. Easy accessibility to money markets

e. High liquidity

f. Investments can be rolled over after 90 days

Other answer
Professional management  - Fund managers use a range of investment resources, processes, skills, and experience to invest and manage your money on your behalf.
Convenience - manager will look after all the paperwork for you, the buying and the selling, the decisions on rights issues, the collection of income, rent and dividends and so on. And then, on a regular basis, the Fund Manager will report to you on the performance of the fund.
Diversification- Due to the experience of the fund manager, he/she will provide the retail investor with a range of options. The retail investor therefore gets a diversified portfolio made up of different classes and industry sectors hence reducing risk.
Cost-effective investment - Since the retail investor has many options at his/her disposal, he can find affordable investment options.