The Norwegian fund industry has experienced a significant increase in the number of monthly savings contracts or agreements signed between retail investors and local fund management companies.
More than 60,000 additional agreements were established during 2015, which is an increase of 8.7% from the year before.
Currently 773,000 Norwegians have entered into agreements, representing a total inflow of NOK680 million (€76.7 million) into investment funds every month.
A savings agreement means that you sign up for a fixed amount to be invested every month in one or several investment funds, usually equity or balanced funds. The agreed amount will be automatically debited directly from your bank account.
The Norwegian Fund and Asset Management Association (VFF) has conducted and published annual surveys on fund subscriptions through savings agreements for the past decade. Since the first survey in 2006, the yearly inflow in investment funds through such savings agreements has nearly doubled from NOK4.4 billion to NOK8 billion last year.
VFF are pleased to observe this development among retail investors. We believe that savings agreements are a proven and simple investment strategy for retail investors to achieve a good risk-adjusted long-term return in equity funds.
Since the establishment of VFF in 1995, this has been our mantra, as it is our conviction it is the best advice we can give the retail investor. A monthly savings agreement offers you the possibility to spread the investments in the equity market over time, and that way the risks are lower than if you try to find the ‘right’ time points. Hence, over time a savings agreement will probably also give you a higher average return than if you try to bet whether the stock market will go up or down in the short term.
In Norway, as in most European countries since the financial crisis, interest rates on bank deposits have plunged. But even with the almost historically low interest rates we have observed, investment funds have not been the preferred investment alternative to Norwegians.
More than 80% of Norwegians own the house they live in, which is among the highest levels in Europe. This may be a result of several factors, such as culture and history, but it is also a result of a tax system that favours property investments.
Norwegians also have a rather short tradition when it comes to investing in investment funds, compared to our Scandinavian neighbours. Since a pension reform was introduced in 2006, most private sector employees now have assets placed in investment funds through their retirement plan. We believe this will contribute to more Norwegians get a better understanding of the benefit of long-term savings in investment funds.
REAPING THE BENEFITS
The increase in the number of savings agreements coincides with a 10% increase in the average amount saved every month.
Men are still saving more than women. They not only account for a larger portion of the agreements, they also have higher average monthly savings. The 40-59 age group accounts for the highest number of agreements.
On the other hand, the youngest age group (0-14) has the largest increase in average amount to be saved per month (31%). This suggests parents or grandparents are saving more for their children in investment funds.
By starting a savings agreement early, you will reap the benefits of compound interest and deferred tax for a longer period.
The start of 2016 has shown great volatility in the equity markets globally. Despite this, we are happy to have observed that the Norwegian retail market has had a net inflow in equity funds in Q1 and that the number of savings agreements is still soaring.
Bernt S Zakariassen is chief executive officer at the Norwegian Fund and Asset Management Association (VFF)
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