Question

2. Mr. Abdullah aged 45 is having a cold store in one of the cities in Oman. He has been doing this business for the past 10 years started by taking a loan in the bank. He has repaid the loan last year. Now he has a savings of RO45000 and able to save around RO2000 every month. He does not want to keep his savings idle. He wants to invest it. He wants to invest RO 45000 in such a way that he will be able receive a fixed return every month. Out of his monthly savings he wants to keep 60% for emergency purpose and remaining to be invested in different investment. He is ready to take high risk for this investment for this amount.

a. Provide him with suitable investment opportunities to have a moderate return with the minimum level of risk expected by him. Provide proper reasons for advising those investment options. Discuss any two characteristics of those investments

b. Create a portfolio (with actual numbers) with different investment options you have chosen with the average return on those investments in Oman in the last 3 years.

c. Explain the major investment factors will be considered by you while making the investment options for this particular investor? (300 words)

Answer 1

Name: Mr Abdullah

Age: 45 years

Occupation: Business

Experience in business: 10 years

Liabilities: Nil

Current Savings: RO45000

Monthly savings= RO2000

Monthly net savings for investment = 40% x 2000= RO800

( 60% of monthly savings will be used for expenses)

Requirements: Mr Abdullah needs fixed monthly return for his current Savings. Monthly savings of RO800 may be invested in high risk investment avenues.

Solution:

a) For his current Savings, the best option is Fixed Deposit scheme of bank wherein he can get a fixed monthly return. The risk is very minimal with bank fixed deposit compared to any other investments for an individual. The banks in Oman allows for fixed deposit scheme, the minimum amount as RO1000 and minimum period is 1 month and maximum term is 6 years. Interest can be received monthly. Anytime withdrawal available.

Average rate of interest for 6 years term is around 4%.

The monthly savings amount can be invested in Mutual fund schemes as he is ready to take risk. Average annual return from mutual funds is around 9%. The monthly savings can be invested in the form of SIP (Systematic Investment Plan).

b) Portfolio:

Bank Fixed Deposit: RO45000

Term: 6 years

Rate of interest: 4%( interest can be received monthly)

Mutual fund SIP : RO800 per month( it can be invested in Oryx Fund or Vision Emergency GCC fund or Vision Real Economy Fund as these are the top three performing mutual funds)

Average rate of return: 9%

c) Investment factors considered for Fixed Deposit scheme: The customer is of the age 45 years and he needs a regular fixed income on a monthly basis. He is not in a position to take much of risk also. His investment amount is not that big too to recommend any other instruments. Considering his business going well as in the past, and the savings he managed to fetch during last 10 years, it is not advisable to put in risky avenues. So fixed deposit scheme is the best option for him. All these aspects can be made available in fixed deposit scheme.

As far as the monthly savings is concerned, he is ready to take some high level of risk. Secondly, the investment amount is very less and is fixed monthly. In this scenario, the best option available is mutual fund schemes, wherein around 9% return is there and monthly SIP(Systematic Investment Plan) available. The funds mentioned above are the top three performing mutual funds in Oman. SIP gives him the benefit of purchasing the units at an average price and to get an optimum return. Through SIP, fund units are purchased at different prices every month and so there can be an averaging of prices.