Investment Decision for Superannuation Scheme of Kiwi

The study analyzes the advantages and disadvantages of different funds in the superannuation scheme of Kiwi to make an investment decision. It compares the profitability and volatility of each fund and includes a sharp ratio analysis to assess risk-adjusted returns.

Running head: BUSINESS FINANCE
Business finance
Name of the student:
Name of the university:
Author’s Note:

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Executive summary
The study sheds light on the decision making for the investment into the managed fund of
superannuation scheme of Kiwi. The decision has been made through understanding the
advantages and disadvantages among those funds and their capability to earn return. The
study has compared different funds through evaluating their profitability and volatility.
Finally, the study includes a sharp ratio analysis to understand their return through adjusting
return. This helps in making decision through comparing the return as compared to risk.

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Table of Contents
Introduction................................................................................................................................3
Answer to question 1..................................................................................................................3
Answer to question 2..................................................................................................................4
Answer to question 3..................................................................................................................5
Answer to question 4..................................................................................................................6
Conclusion..................................................................................................................................6
References..................................................................................................................................7

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Introduction
The superannuation fund refers to the fund that creates a future return on the
employees’ contribution and employees get benefited with the return. This refers to the
contribution from the employee’s salary. However, this provides tax exemption facility. The
superannuation fund refers to as a retirement investment plan. This requires contribution from
the employee’s salary and the final amount can be withdrawn at the age of retirement or
before that. For the better understanding the study undertakes a case study analyses based on
superannuation scheme. The study identifies the advantages and disadvantages of each of the
different types of managed fund through comparing each fund for generating investment
decision.
Answer to question 1
Advantage:
1. Down under all order index: this fund provides opportunity on earning more as this
replicates the all order index that are running into the capital market. As the fund
replicates other ordinary index funds, this has a scope of generating more return. This
also involves less expense charges as the fund does not require any management by
the fund or portfolio manager. The fund reflects a lower diversification through the
lower SD. This means the stock price in this fund are less volatile (Hamilton and Wu
2015).
2. Down under property fund: This fund provides opportunity of making an investment
on a less volatile fund as this fund generates less volatility on the investment return.
However, with the investment of only 10% into the company based share and mainly
investment in the property trust shares, makes the fund a constant performer (Means
2017).

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3. Down under bond fund: this fund invests in the long term debt as this invests on the
bond that the companies have issued. As the fund invests into the bond fund the fund
reflects less risk and provides a stable amount of return.
4. Down under market fund: this fund is facilitated with the opportunity of earning more
return compared to the bond fund with the less volatility (Berk and Van Binsbergen
2015).
Disadvantage:
1. Down under all ordinary fund: This fund has a disadvantage on copying other
ordinary index fund. As the fund copies other fund, this fund copies the risks as well
which makes the fund more volatile compared to the other fund that the
superannuation scheme is having.
2. Down under property trust fund: This fund invests into property trust shares. Hence
this involves high risk. However, to minimize the risk this fund require better
management which involves management expenses and makes the profitability down.
3. Down under Bond fund: this fund also involves higher charges for the better
management of the fund. However, the fund generates lower return compared to all
ordinary index fund. The money market fund also reflects a high SD which reflects a
higher amount of deviation in price and return.
4. Down under money fund: this fund does not provide any idea on return. However,
the manager tends to keep the share price constant at $1 per share but there is no
guarantee that the share price will stay at $1 per share.
Answer to question 2
Advantages:

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The fund is better in the sense of providing better return. As the fund copies other
ordinary index funds this provides more return on investment. If the share which has been
replicated starts providing better return or higher return then this fund will also generate
higher return. This return is generated without managing through the fund manager. Hence
this does not include management expense and gains more return. Compared to the bond fund
the ordinary index fund involves less management expenses and also provide a better return.
This provides an opportunity of earning higher return on investment and provides better
diversity opportunity (Rahim, Goodacre and Veld 2014).
Disadvantage:
In between the Ordinary index fund and bond fund the ordinary index fund is
provided with the risk of volatility. As the ordinary index fund invests into the equity shares
this provides high return with the generation of higher amount of risk. Along with that the
risk in choosing this fund is the fund also having risk in larger drop in value.
Answer to question 3.
The investment decision has been made through comparing with the other funds. This
has been noticed that the property index fund generates lower amount of return compared to
the ordinary index fund. However, the fund also reflects a lower amount of risk. On the other
hand the return compared to the rest of the funds such as bond or property fund is high but
more volatile compared to them. This makes this fund a balanced fund as the fund is
generating a higher return compared to the money market, bond and ordinary index fund and
generating lower amount of volatility compared to the ordinary index fund. Considering the
investment decision the property index fund reflects a more balanced fund as this generates a
stipulated amount of return provided with the lower amount of risk compared to the ordinary
index fund.

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Considering the expenses into the investment decision this makes the investment
decision negative towards the fund. However, as the fund generates more return, the higher
management fee can be given to manage the fund. This helps in formulating the decision in
favour of investing money into the property fund and identifies the scope of risk adjusted
return on investment (Chueva et al., 2016).
Answer to question 4
Sharp ratio is a risk adjusted measure of return which is used to evaluate a portfolio’s
performance. This measures how volatile the investment portfolio actually is compared to
other one. These measures retune of one portfolio compared to another portfolio though
adjusting risk. This has been used to measure the amount of risk that the portfolio is
undertaken to generate a return. This helps in comparing risk with the return of one fund to
another (Lorig, and Sircar 2016). A sharp ratio of 1 indicates towards a positive performance
of the fund through adjusting risk. However, comparing different type of funds here in this
case study this has been recognised that all the funds have generated a sharp ratio below 1.
This indicates that none of the funds have a good risk adjusted return and indicates towards
being volatile. Along with that the SD of 26.82 in the property fund proves to be more
volatile and create deviation into variance (Gandhi and Perumal 2016).
Conclusion
The study provides idea on different investment options into the superannuation
scheme in Kiwi. This provides idea on the investment choice and investment decision
through comparing advantage and disadvantage of each of the funds. However the volatility
and the management expenses has been taken in to the consideration while making decision
and the sharp ratio has been calculated to understand the risk adjusted return of each fund.

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References
Berk, J.B. and Van Binsbergen, J.H., 2015. Measuring skill in the mutual fund
industry. Journal of Financial Economics, 118(1), pp.1-20.
Chueva, T.I., Niyazova, G.M., Metsler, A.V., Shkurkin, D.V., Aznabaeva, G.H. and Kim,
L.I., 2016. Approaches to the development of endowment funds in Russia as an instrument of
mixed financing of the social sphere. International review of management and
marketing, 6(1S), pp.261-266.
Gandhi, R.K. and Perumal, R., 2016. Performance of Selected Bank Mutual Funds Schemes
Impact in Investors’ Decision Making,“. International Journal of Advanced Research, 5(3),
pp.361-370.
Hamilton, J.D. and Wu, J.C., 2015. Effects of index‐fund investing on commodity futures
prices. International economic review, 56(1), pp.187-205.
Lorig, M. and Sircar, R., 2016. Portfolio optimization under local-stochastic volatility:
Coefficient taylor series approximations and implied sharpe ratio. SIAM Journal on Financial
Mathematics, 7(1), pp.418-447.
Means, G., 2017. The modern corporation and private property. Abingdon: Routledge.
Rahim, N.A., Goodacre, A. and Veld, C., 2014. Wealth effects of convertible-bond and
warrant-bond offerings: a meta-analysis. The European Journal of Finance, 20(4), pp.380-
398.