CC BY
13
Section 7. Finance, money circulation and credit
https://doi.org/10.29013/EJEMS -20-4-81-84
Chalova Alla Yurievna, Assistant Professor of the Department for Finance and Prices of the PRUE, PhD, Plekhanov Russian University of Economics,
E-mail: achal@yandex.ru Dorozhkina Anastasia Mikhailovna, 3d year Student, Finance Faculty, Corporate Finance Programme Plekhanov Russian University of Economics, E-mail: anastasia.doroshkina@mail.ru
EFFICIENCY OF INVESTMENT INSTRUMENTS FOR POPULATION: SELECTION CRITERIA AND COMPARATIVE ADVANTAGES
Abstract. The article examines the possibility of using alternative investment instruments by the population in the context of a decrease in the profitability of traditional financial assets based on the comparative characteristics of mutual investment funds and individual investment accounts. Using the example of specific financial instruments for collective and individual investment, the authors assessed their investment opportunities for private investors in the current environment, determined the criteria for choosing a digital platform that will increase the efficiency of the transaction for the investor.
Keywords: collective investment, mutual Fund, individual investment account, investment strategy, digital investment platform.
Improvement of financial literacy of the Russian population had a positive effect on the growth of its interest in various investment instruments that go beyond traditional bank deposits. In the context of a steady interest rates decline both on the world and national financial markets, traditional for the population and usually less risky investment instruments (bank deposits) that do not require significant financial knowledge and investment skills are beginning to lose in terms of investment returns to those that contain various investment strategies. An additional factor in reducing investor interest in conservative investment tools was the growing uncertainty in the global economy caused by the coronavirus pandemic
that increased price volatility in financial markets. In this regard, it becomes necessary to reorient the investment preferences of the population to more effective instruments in terms of risk diversification and profitability.
A mutual investment Fund (hereinafter referred to as MF) is one of the investment instruments alternative to bank deposits with a wide range of formats and conditions for investing funds. MF is already quite well-known form of collective investment in the Russian market for the population, suitable for both novice and experienced investors due to the combination of investment opportunities in a variety of areas, depending on the chosen strategy (equity funds,
bond funds, money funds, index funds, real estate funds, funds of funds, etc.). Investments in mutual Funds represent the transfer of the investor's funds to the management company on the terms of trust professional management of these funds. By investing in MF, the investor acquires only a certificate of equity participation in the Fund's asset portfolio in the form of a share, in fact, not being the owner of these assets acquired with part of its funds. In case of the management company bankruptcy, the investor may completely lose their capital, as a share is not equivalent to ownership of assets of the managing company. This risk is partially compensated by the opportunity to choose the type of mutual Fund according to the conditions of entry/withdrawal from it and opportunity to participate in forming the investment strategy, receiving income based on investment results.
We will evaluate MF investment characteristics and opportunities for a private investor by the example of the open- end mutual Fund (OEMF RFI) "Sberbank - Fond Sbalansirovanny" called balanced. Its investment strategy is focused on the formation of a diversified portfolio with a dynamic distribution of assets between stocks and bonds, which enables the management company to minimize market risks by adjusting to changes in market conditions, and the investor to increase profitability in the long term. In the analyzed OEMF, shares and bonds are the key assets in the portfolio of Russian companies (mainly oil and gas, mining, and IT companies). The ratio of shares to bonds in the Fund's structure is highly dependent on market conditions changes: currently, it is dominated by shares with a slight margin (5356%); it is planned to increase the consumer sector investments (Children's World, X5 Retail Group, M. Video, Magnit, Lenta Ltd) [1].
An important factor when choosing a MF is the management company's market rating. Since 2003, "Expert ^A" has been annually confirming the highest level of reliability and quality of management company of "Sberbank Asset Management" services at A++ level [2]. As of the beginning of October
2020, this OEMF ranked second in the ranking of open-ended and exchange-traded Funds in terms of the amount of funds raised from investors, entering the TOP-10 OEMF by net asset value (NAV) [3].
In order for investors' understanding the investments effectiveness in a particular MF, all management companies are required to publish information on the mutual funds profitability held in their trust management at least once a year. Actual profitability for OEMF RFI "Sberbank - Fond Sbalansirovanny" is 34.57% for 3 years, while the annual profitability of the fund was only 7.16%. At the same time, there are large OEMF of "VTB" and "Rosselkhozbank", similar in investment strategies, that demonstrated profitability of 40.65% and 33% for 3 years, respectively, with annual rates of return of 4.95% and 6.14% [4; 5]. Thus, OEMF RFI "Sberbank - Fond Sbalansirovanny" turned out to be the most stable and profitable at the end of 2019.
One of the key factors of investment in mutual funds and its undoubted advantage is the low entry threshold, which is important for private investors in Russia. For example, in the analyzed MF, the minimum investment for the first and subsequent shares purchase is 1000 rubles when using mobile applications. It can be concluded that investing in MF is suitable for those who prefer saving time by entrusting their funds to professional market participants, not being guided by the stock market and not having the proper level of financial literacy, with the expectation of obtaining a higher in comparison with traditional investment tools return.
However, MF place a private investor in a high degree of dependence on the management company financial stability and professionalism and do not allow him to form and implement his own investment strategy in practice. An individual investment account (hereinafter referred to as IIA), which first appeared in 2015 and has now gained great popularity among retail investors lacks of such a disadvantage. According to the Moscow Exchange data, the number of registered IIAs has increased by almost
2,5 times in the last year alone, reaching 2938 563 in September 2020 [6]. At the same time, the Bank Group "Sberbank of Russia" takes the first place in the trading participants Rating by the number of registered IIAs: it accounts for 51% of all registered IIAs. In this regard, it will be relevant to assess the prospects for investing capital in this instrument also on the example of "Sberbank".
The main differences between IIA and MF are a greater degree of investor independence when forming an individual investment strategy, the investor's ownership of the property rights to the assets he acquires and, as a result, a higher entry threshold. IIA can occur on the basis of both the proposed by broker (bank) and an independent assets portfolio formed by the investor. A popular strategy for private investors in the Russian market using IIA is to invest in shares with simultaneously a high level of dividend yield and liquidity, such as shares of Sberbank, Gazprom, LUKOIL, Yandex, NOVATEK, and Rosneft. For example, the dividend yield of Sberbank shares in 2019 was 8.98-9.29% per annum, which significantly exceeds the Bank's interest on deposits. This circumstance makes the use of IIA more attractive for private investors in comparison with traditional investment instruments.
An additional bonus when using IIA is the availability of a tax benefit in the form of a personal income tax deduction, equal to 400000 rubles with a minimum investment period of 3 years. The investor chooses the type of deduction - deduction from contributions or deduction from income; more often the first type turns out to be more profitable, since the total ofthe 3 years' deductions exceeds the deduction from the investment income of the novice investor.
An important criterion for choosing an investment instrument affecting its final profitability is the level of the management company (in MF) or broker commission (IIA). Thus, the average commission level when investing in "Sberbank" OEMF is about 3%; it includes commissions for buying and selling shares, remuneration of the management company, commissions of a special Depository, Registrar, Auditor, and other ex-
penses. As a rule, commissions charged to investors in MF are included in the cost of the share and information about the final portfolio return. When opening an IIA, in the case of investing independently, there is no commission for opening an account and managing funds, - only brokerage rates are applied, which are significantly lower than the management companies' commissions. For example, "Sberbank" charges 0.06% for transactions up to 1 million rubles on the stock market of the Moscow Exchange [7]. Hidden and frequently overstated commissions significantly reduce the profitability of investments, which makes the IIA more attractive to the investor.
The efficiency of using investment instruments is also affected by the competent choice of a digital platform providing access to the selected instruments. The authors defined the following criteria for evaluating the effectiveness of digital platforms: platform accessibility, functionality for trading instruments, efficiency of updating market information, speed of work on the platform, availability of additional information in real time.
For the considered instruments - OEMF RFI "Sberbank - Fond Sbalansirovanny" and IIA, the following digital platforms have been selected by the authors of the article - "Sber Asset Management" and "Sberbank Online". Both apps are free and available for download by all iOS and Android mobile users.
Comparative analysis of the selected digital investment platforms of "Sberbank" showed that both platforms provide general information about MF, their structure, investment conditions and strategies. The advantage of using both platforms for shareholders is a low threshold for entering and further acquiring shares, but "Sber Asset Management" platform has a wider functionality, including the availability of additional information on the OEMF RFI "Sberbank - Fond Sbalansirovanny", the ability to select a Fund according to the investor's wishes, its interface is more adapted for easy and convenient use.
A more flexible platform for opening IIA is the "Sberbank Online" platform, where opening an ac-
count both as part of the ready-made investment strategy and on condition of its independent formation can done directly in the application. The "Sber Asset Management" platform is favorably distinguished by the provision of extra information on IIA, publication of the account opening and investment conditions. However, the lack of the possibility of opening an independent IIA is its obvious disadvantage; instead, it is proposed to invest in ready-made strategies (portfolios), which returns the investor to paying management fees and losing his freedom in choosing assets, but for less to open an account.
The conducted research ofinvestment advantages of MF and IIA as alternative to Bank deposits invest-
ment instruments, based on identifying and evaluating key criteria that affect their attractiveness to private investors, allows us to conclude that in the context of the economy digitalization, of the state policy focus on increasing financial literacy of the population and of active involvement of its funds in the financial market, in comparison with MF, IIA demonstrates more favorable investment conditions for the population. In addition to investment benefits, including tax benefits, no hidden fees and the ability to independently form an investment strategy, IIA provides its owners with continuous financial knowledge, an increase in their financial competencies, and as a result, growth in further investment income.
References:
1. Sberbank Official Website Asset Management: Fond Sbalansirovanny. Available at: URL: https://www. sberbank-am.ru/individuals/fund/opif-smeshannykh-investitsiy-sberbank-fond-sbalans/ (accessed 8 October 2020).
2. The rating Agency "Expert iRA Official Website": Ratings of reliability and quality of management companies' services. Available at: URL: https://www.raexpert.ru/ratings/managing/ (accessed 18 October 2020).
3. The information Portal Investfunds: Mutual Fund rankings Investfunds. Available at: URL: https://investfunds.ru/fund-rankings/ (accessed 30 September 2020).
4. VTB Capital Official Website: Investment management: Investment strategy of VTB -Balanced Fund. Available at: URL: https://www.vtbcapital-am.ru/products/pif/opif/vtbfs/investment_strategy/ (accessed 20 October 2020).
5. RosselkhozbankJSC Official Website: OEMF «RSHB - Balanced Fund». Available at: URL: https://rshb-am.ru/trust/balanced/ (accessed 20 October 2020).
6. Moscow Exchange Official Website: Rating of bidders by the number of registered Individual investment accounts. Available at: URL: https://www.moex.com/ru/spot/members-rating.aspx?rid=125 (accessed 8 October 2020)
7. Sberbank Official Website: Brokerage service rates Available at: URL: https://www.sberbank.ru/ru/ person/investments/broker_service/tarifs/ (accessed 12 October 2020).
