THE INSTITUTE OF ACCOUNTANCY ARUSHA

MFI (MARCH INTAKE)

INDIVIDUAL ASSIGNMENT

INVESTMENT AND PORTFOLIO MANAGEMENT

FIG 09208

PROGRA : MASTERS OF FINANCE AND INVESTMENT

MODULE : VARIABLE AND FIXED INCOME INVESTMENT

CODE : FIG 09208

SEMESTER: ONE (1)

FACILITATOR: DR. LUSEKELO

NAME : JOYCELLINE J. KATO

REG. NUMBER: MFI/DSM/0047/2021

QUESTION:

Write a conceptual paper that assesses the performance of variable and fixed income investments
in Tanzania.
Income must be divided into two categories: fixed income and variable income. Variable income
is a type of investment in which the payout is unknown at the time of application. Stocks, or
shares, are the most common type of variable income investment. Its prices are constantly
changing, making it difficult to predict how much money the investor will make, if any at all.

Fixed income refers to investments that pay a guaranteed return until the maturity date and then
pay back the amount invested. In other words, it is an investment that typically yields predictable
returns paid on a regular basis at a fixed dividend or interest rate. They are issued to finance the
operations of governments, corporations, and other entities. Corporate, government, and treasury
bonds, as well as bank deposit certificates, are the most common types of fixed income
securities. Fixed income broadly refers to those types of investment security that pay investors
fixed interest or dividend payments until its maturity date. At maturity, investors are repaid the
principal amount they had invested. Government and corporate bonds are the most common
types of fixed-income products. Unlike equities that may pay no cash flows to investors, or
variable-income securities, where payments can change based on some underlying measure, such
as short-term interest rates. The payments of a fixed-income security are known in advance.

Although variable income products are considered more risky (higher volatility) than fixed
income products, they provide a better return, and that’s why they are so important in portfolios.

Assessing Investment Performance

Choosing investments is just the beginning of the work as an investor. As time goes by, it is
needed to monitor the performance of these investments to see how they are working together in
the portfolio to help progress toward the set goals. Generally speaking, progress means that the
portfolio value is steadily increasing, even though one or more of your investments may have
lost value.

If investments are not showing any gains or account value is slipping, it is therefore important to
determine why, and decide on next move. In addition, because investment markets change all the
time, it then requires being alert to opportunities to improve portfolio's performance, perhaps by
diversifying into a different sector of the economy or allocating part of the portfolio to
international investments. To free up money to make these new purchases, demands someone to
sell individual investments that have not performed well, while not abandoning the asset
allocation selected as appropriate.

Assessing variable Investment Performance

The performance of variable investment is highly or in most cases determined by level of

demand, that is to say, if there is consistency in the level of demand, there is greater chance that
the return will grow. And such growth eventually leads to the development of the investment.
For example, increase in the demand of shares in Dar es Salaam Stock Exchange automatically
results in inflation (increase in price of the share) something which leads to generation of high
returns to the investors. Similarly, fall in demand of shares leads to the fall in the price of shares
and hence low return. The higher the risk, the higher the return. However, it is not always the
higher the risk results to higher returns. And this is because, of the fluctuation in the level of
demand.

Potential Benefits of Fixed Income

Depending on financial goals, fixed income investments can offer many potential benefits,
including:

Diversification from Stock Market Risk

Fixed income is broadly understood to carry lower risk than stocks. This is because fixed income
assets are generally less sensitive to macroeconomic risks, such as economic downturns and
geopolitical events.

If seeking to grow wealth investments over time to save for retirement or other long-term goals,
it probably holds a significant amount of stocks in portfolio. But by allocating a portion of
portfolio to fixed income investments that can potentially help offset losses when stock markets
swing.

Capital Preservation

This entails protecting the absolute value of investment via assets that have a stated objective of
return of principal. Investors who are closer to retirement may rely on their investments to
provide income. Because fixed income typically carries less risk, these assets can be a good
choice for investors who have less time to recoup losses. However, someone should be mindful
of inflation risk, which can cause investments to lose value over time.

Income Generation

Fixed income investments can provide a consistent source of income. Debt holders receive a
fixed amount of income at regular intervals in the form of coupon payments. In the case of many
municipal bonds, the income is tax-free.

Total Return
Some fixed income assets offer the potential to generate attractive returns. Investors can seek
higher returns by assuming more credit risk or interest rate risk.

To sum up, variable investments have higher volatility than fixed income, and this is the reason
why they provide higher return and they are considered to be very important in the portfolios.
Apart from this, the purpose of investment or the goal of investment determines the nature of
investment to be done. That is to say, if an investor wants to reduce the risk or do investment
with less risk, such investor will have to opt for fixed income investment which is considered to
provide more security to the investor and this has to be done with knowledge that the return will
not be as high as in variable investment.
 REFERENCES

Haugen R.A. (1986): Modern Investment Theory. Prentice-Hall, Englewood Cliffs, N.J.

Hirt G. (1981). Fundamentals of Investment Management, Irwin, Homewood, Illinois, USA.

https://www.blackrock.com/us/individual/education/fixed-income

Investment Research (E.A) Ltd (2000). A Guide to Business and Financial Terminology.

Pagano M. (1993): “Financial Markets and growth: An Overview”, European Economic Review,
37, pp.613-32.
Pandey, I.M (1995): Financial Management, 7th Edition; Vikas Publishing House PVT Ltd- New
Delhi.

UmaS. (1986): Research Methods for Business; “A Skill Building Approach”, 2nd Edition.