when you listen “cost effectiveness”What is the first thing that comes to your mind? Normally reference is made only to the “profit” of an investment. However, it is much more than that. For companies and businesses this is a concept of enormous importance. Along these lines, Camila Garate, Investment Analyst at Prima AFP, easily explains profitability and its importance for your finances, those of the country and the world.
“Profitability is everywhere and can even go unnoticed. On a daily basis, when you buy your breakfast, the lady who sells emollient at her stall has a set price for each of her products where she considers various factors such as the cost of ingredients and production. If her cost per glass of her emollient is 1 sole and she sells it for 2 soles, the profitability of her product is 100% and thus she can also define the profitability of her business in a period certain. Normally profitability is expressed as a percentage,” she explains.
For Garate, it is key to be clear that there are several types of profitability and that each one has a different reading and that, in the case of long-term investments such as AFPs, profitability varies over time. “In the case of AFPs, profitability is the return that the member obtains when his AFP invests the money in his fund. Thanks to this, the member’s fund can grow over time and, thus, have a better retirement in the future,” he points out.
According to the specialist, the profitability of the affiliates’ fund “is not fixed, since it changes according to the performance of the investments which, in turn, depend on various internal and external factors such as interest rates, inflation, growth of the economy, geopolitical events, among others.”
“Many people do not understand why what happens in the Middle East or the United States has an impact on the profitability or performance of their investments, but the reality is that the AFPs invest their members’ money in different investment instruments, which have three components: profitability, temporality and a risk associated with the volatility of changes in the markets or the world,” he asserts.
Finally, Garate explains the relevance of fund profitability in personal finances and how it can be viewed in simple terms. «If you are a member of Prima AFP and if your money is in fund 2, during 2023 the profitability was 10.33%. Along the same lines, if your fund is in fund 1, during the same period the profitability was 16.27%. At the same time, on a one-year fixed-term deposit, banks on average offered an interest of 7.02%, financial institutions 7.82% and municipal savings banks 7.57%,” he concludes.
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– 2024-05-01 13:24:36
