Investment Strategies in Superannuation Funds

This report discusses the various investment strategies in superannuation funds and their benefits and risks. It explores the concept of time value of money and provides recommendations for investing in efficient portfolios. The report also emphasizes the importance of analyzing market conditions and making informed decisions to maximize returns and minimize losses.

CORPORATE FINANCIAL MANAGEMENT
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Executive summary
There are various types of strategies present, in which an employee can invest and multiply their
savings. One of the most important strategies is funding with the help of superannuation funds.
Investment in the superannuation strategies has been very popular among the employees for
gaining benefits on their savings. The employees are needed to clearly strategize the investments
before opting for the most appropriate approach they're going to invest their savings. Hence, this
report will clearly suggest all the facts that are needed to be analyzed by the tertiary sector
workforce to judge if it is valuable to invest their life savings in the superannuation approach or
not. The report also consists of various types of plans which can be selected by the employees to
invest their savings.
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Superannuation contributions
There are various types of schemes present in an organization that help the tertiary sector
workforce to generate returns on their savings. One of the most common strategies is an
investment with the help of superannuation funding techniques. The most important objective of
superannuation contribution is to collect a small part of the employee’s salary every month and
make a proper savings plan so that they can live their life peacefully after their retirement. The
collection of the superannuation funds as a part of the employee’s salary has been made
mandatory in many of the countries in order to inculcate the habit of savings among employees.
This makes it necessary for employees to provide their contribution in the superannuation funds
and later the financial analysts or institutions are given the task of underwriting them in proper
portfolio and schemes so as to earn high interest that can be returned to the individuals. The
financial institutions are required to analyze the market and choose the most appropriate scheme
of the portfolio in which maximum return will be provided on the investments that have been
saved by the employees over the years of service.
The economic sectors of a nation are generally divided into three constituencies of the
secondary, primary and tertiary sector (Berry, 2009). The relevancy of the superannuation
contribution can be determined on the basis of the area in which an organization lays its
management structure. The most important task of a tertiary sector employee is to give the best
options for making investments that can help organizations to maximize the returns and hence it
plays an important role for the application of knowledgeable skills that can further help to
improve the productivity of the organizations and other areas. For past few years, it was
observed that 3% of the total employee’s salary was contributed as a collection of
superannuation funds but after 2009 this rate was to go as high as 9%. A minimal amount of
money which is gathered by the organization is also used for advertising of these kinds of
methods so that they can improve their social security systems and also collect the money so that
their employees can retire peacefully. It has been observed that many renowned organizations
have been established to take good care of the superannuation fund that has been collected by the
employees. These financial institutions analyze the market and invest the money in eligible plans
so as to earn maximum interest on their savings. The financial firms will also make it easier for
the workforce to determine the type of plans they are going to underwrite their savings in.
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Basically, there are two kinds of plans in which the workforce can invest their superannuation
funds: investment choice plan and defined benefit plan.
The defined benefit plan is an underwriting method in which a fixed amount is ascertained as an
interest rate that will be returned to the employee on the investment that will be made by him as
superannuation contribution. The interest that is being returned to the employees is depicted by
clearly analyzing the average salary, age of the employee, total working tenure, etc. The returns
provided to the workforce of the organization are calculated at the very initial stage of the
investment program because of which low risks are faced by the employees or individuals. Also,
this will not create any kind of misunderstanding or problems in the future.
The investment choice plan is a strategy in which the employees are provided with the power to
choose the operations of the portfolios for investing their savings money. The money or the
amount which is returned back to the individual for employees consists of the investment made
by him, the returns that have been earned on the savings which are further deducted by the
management and other administrative expenses. These plans are very flexible in nature because
they allow the employees or individuals to determine the type of equity stocks or investment
plans in which they want to invest their money so that they can get higher returns on their
savings (Boyd, 2013). Various types of investment opportunities like sector funds, share funds,
trustee’s selection fund, stable fund, and other portfolio options are provided to them which can
be chosen by the employees on the basis of the risks over return factors.
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Factors to be taken into account
It is very important for the employees to analyze all the factors of the environment that can affect
the portfolio in which he is investing his savings before taking any decision. The employees
seeking for low risk and minimal returns should opt for defined benefit choice plan because it
will provide them with specific returns that are decided at the initial stages of the investment and
also they are not volatile with respect to any of the changes in the market. The returns will be
constant and hence no risks prevail in these kinds of investment strategies (Datar, 2015). The
employees who are not having any kind of problems to face risk should invest in the investment
choice strategy because it will provide them with greater returns if they will conduct a proper
scrutiny over the environment of the market and the portfolio they are going to invest their
savings in. There are many factors that should be analyzed by an employee for an individual
before investing the superannuation funds in the investment choice plan. The employees of the
individuals can use their knowledge and expertise to manage the portfolios in which they are
going to underwrite their savings for getting maximum returns and minimize losses on the
investments. If the employee or individual is not able to conduct a proper analysis, then he may
face losses on the investment made by him. Hence, it can be stated that the best way to earn
returns on the superannuation funds is to give the savings to the employers to invest. This is not
only relieving them from the risks but will help them to gain higher returns. The employees who
are having sufficient income for fulfilling the expenses should also go for investment choice plan
because they are already having a defined source of income and can use the extra money to
invest and earn higher returns on them (Datar 2016). The money received by them can be used
for improving the standard of living in the old age. The defined benefit plan provides much
lower returns to the employees than the investment choice plan. The decisions that are clutched
by the employees should be based on a proper study of all the environmental and market
conditions that affect the rate of return on the investments that will be received by the workforce
of the company.
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Concept of time value of money
It is a universal truth that time is also considered as money. In accordance to this, it can also be
stated that the organization tries to fulfill the future goals of cash flows by determining the
financial decisions that can help them to reduce the expenses and increase the opportunities for
the profit of the business in future. Proper understanding should be made by the organizations in
relation to this concept because is very important while making the application of the business
policies in the organizations. Also, the total worth of savings of the individuals or the capital of
the organization will get degraded if they are not invested in fruitful assets. Therefore, it is a
necessary function for an individual or an organization to invest his savings or capital in fruitful
policies that can help them to earn considerable interest as returns. The present condition of the
currency value in the market environment also plays a very important role in determining the
type of strategy or plan in which the superannuation funds are going to be contributed so that
maximum rate of return can be provided on the investments (Holtzman, 2013).
The working staff or the employees of the organizations are asked to invest small amounts of
their salaries as superannuation funds till the time they provide services to the company. The
total amount of the money collected by Organization in this service term is used by it for
investment purposes in various schemes and portfolios so that the amount can be maximized and
proper return can be provided to the employees on it. Therefore, it can be observed that by the
time the total amount gets back to the employees, it has been through many of the portfolios or
schemes that have helped it to get maximum returns on the savings. Hence, the employees
should understand the need or value of savings and proper investment strategies should be
utilized by them for maximization of returns. It will be much better for the employees if they will
invest in long term benefit plans because it will help to provide them with greater benefits if the
proper analysis has been conducted. Investments are not always profitable in nature because of
which the employees can face some negative downfall or loss on the investments made by him.
Time plays a very important role while analyzing the portfolio scheme in which the employee is
investing. Long term plans generally are more volatile in nature but can provide maximum
output to them. Environment plays a vital role in the determination of the investment plan and
hence the employees should have patience while making the investment which will further allow
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them to achieve maximum return. All the decisions that are being taken by the employee should
also consider the time value of money concept so that no losses are faced by it in the future.
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Conclusions and recommendations
The dynamic nature of the equity stocks always makes it difficult for the employees or
individuals to invest in them. The employees or organizations can try to take advice from
professional in order to invest in the best possible way. In order to earn maximum profit,
individuals or employee should invest in shares of blue-chip companies which are not vulnerable
in nature and are sure to be profitable as investments. For superannuation funds, the finance
managers are the organizations should try to develop portfolios in which the maximum returns
can be provided to the employees with minimal risks. Different type of investment strategy
should be considered and risks should be eliminated before investing in the portfolio determined
by them. The inflation in the value of taxes should also be judged for ascertaining the investment
plans with the help of the finance managers.
The savings of the employees which are invested as superannuation funds will provide proper
return if they are underwritten in efficient portfolios that can provide them with high returns for
with minimal risks involved. Determining the choice of plans is important for the workforce of
the organization because the total return will be based on the choice made by him. Defined
benefit plan will provide fewer returns and low risk will be involved whereas investment choice
plan will provide higher returns but a lot of risk is involved. Time value of money theory should
also be considered because it plays a vital role in determination of the investments that will be
made by the employees because the value of savings will be degraded with passing time. After
conducting an efficient market hypothesis, the right portfolio can be used by the fund managers
to determine the schemes in which it is going to invest the savings so that the employees can gain
maximum returns with minimal risks.
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References
Berry, L. E. (2009). Management accounting demystified. New York: McGraw-Hill.
Boyd, W. K. (2013). Cost Accounting For Dummies. Hoboken: Wiley.
Datar, M. S. (2015). Cost accounting. Boston: Pearson.
Datar, S. (2016). Horngren's Cost Accounting: A Managerial Emphasis. Hoboken: Wiley.
Holtzman, M. (2013). Managerial Accounting For Dummies. Hoboken, NJ: Wiley.
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