Comparative analysis of the Russian and Ukrainian Open-end diversified mutual funds markets Jun 26, 2011 By Oleksandr

Ublinskykh
A mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments or other securities. Being open-ended means that, at the end of every day, the fund issues new investments certificates to investors and buys back investment certificates from investors wishing to leave the fund. The first mutual funds were established in Ukraine in 1994. When the law of Ukraine On Mutual Funds (Share and Corporate Investment Funds) was passed in 2001, the mutual funds appeared in their classic form. Today the Ukrainian practice of investment by the population in OEDMFs (open-end diversified mutual funds) is not so widely spread as in Russian Federation, but the huge potential advantages for the investors predetermine the interest in this sphere of investments. The aim of this article is to compare the Russian and Ukrainian open-end diversified mutual funds markets, the research problems of OEDMFs; to analyze their future prospects. The activity of openend diversified mutual funds supposes the issue of the investment certificates with the ransom right. They are the most attractive for the persons, who do not like to take risks, because diversification of the funds investments significantly reduces risks compared to the risks of investing in a single security by spreading investments across many markets, economic sectors and companies.2006 was a successful year both for Russians and Ukrainians investors. Russian and Ukrainians OEDMFs showed returns higher than the inflation rate and the number of the investors on both markets increased. At the close of 2006 (31.12.2006) there were 10 open-end diversified mutual funds on the Ukrainian market compared with 296 on the Russian one.The dynamics of the funds (%): Russian Federation +45,81%, Ukraine +150%The percent of the market segment (from the whole amount of the funds, %): Russian Federation 48,20%, Ukraine 2,05%.Net asset value (mln. USD): Russian Federation 3489, Ukraine 12,26The growth dynamics of NAV in comparison with 2005 (%): Russian Federation 95,97%, Ukraine 121,07%Annual return: Russian Federation 28,4%, Ukraine 27-29% From the comparative analysis we can see

that the Ukrainian market of OEDMFs is less developed in spite of the fact that the annual return of the both markets are almost equal. The main reasons for this situation are:1. The lack of information about the OEDMFs activities and absence of widespread advertisement in mass media;2. The Distrust of the population to the mutual funds;3. An undeveloped distributors network of the investment certificates;4. A low number of investors. Most Ukrainian investors only pay attention to the annual return index, not correlating the profitability of the portfolio with the investments risks (uncertainty). The main issue of the OEDMFs activities on the Ukrainian market is the absence of information about such coefficients as: alpha, beta, correlation coefficient, Sharps coefficient, Treynors coefficient. The foresaid coefficients are universal tools for the evaluation of successful portfolio management and for the comparison of mutual funds. The coefficients help investors to receive more complete information about the effectiveness of portfolios management. The results of the OEDMFs activities in 2006 by quantitative criterion provide evidence for the high opportunities for further quick development of this market segment in the Russian Federation and the slow development in Ukraine. In order to raise the activities of the Ukrainian population it is necessary to provide effective mass media work. Comparative analysis of the Russian and Ukrainian open-end diversified mutual funds markets indicates that the Ukrainian market needs the development of its distribution network and the provision of clear marketing to the population about the mutual funds activities and opportunities.