Over the past few weeks the major concern in Nigeria’s investment and finance industry has been whether Mutual Funds are safe in Nigeria or not. In fact the general question has been, “Are Mutual Funds Safe In Nigeria?”. This article tries to clear this illusion using valid and realistic market indicators. But first, there is the need to remind ourselves what Mutual fund basically is.
Mutual fund basically is a portfolio put together by fund managers also known as asset managers and they put some stocks and try to select that and try to help you play the market so that you can get the best returns on your investment.
These fund or asset managers are the professionals so they are the ones taking the heat off you but it comes at a cost; it’s not free but it will give you some “good” returns as well.
It is important to have an understanding of what mutual funds is first before finding out if they are safe in Nigeria or not.
What is Mutual fund?
Managed fund also known as Mutual funds is basically pulling funds of different investors together into a fund that is then put in a portfolio to meet the expectation of that category of investors.
Investment in Mutual funds depends on what a person is looking at. There are the young and aggressive investors who may want to go into equity fund. There are also the risk conservative investors who may just want money market returns.
The beauty of managed fund or Mutual fund is that it reduces the individual risk by pulling so many people to put their funds together so that the Mutual funds company or fund manager can then diversify across the instrument in whatever asset class is chosen by the client(s).
There are basically 5 types or categories of Mutual funds:
- Equity funds
- Money market funds
- Fixed income funds
- Balanced funds (a mixture of equities and money market funds)
- Specialized managed funds (i.e., infrastructure)
Whichever one of the above that one goes for depends on the asset chosen under each of those categories and would depend on what the aspirations or target is for the fund.
Are Mutual Funds Safe in Nigeria?
The answer is YES and there are a few good points to back this up.
For example, it has been observed that Nigeria continues to increase an increase in interest and the volume of the strong equities market, the fixed income and very good currency markets which have played into mutual funds for some years now.
According to Ola Balgore, a One-time the Managing Director and Chief Executive Officer at Afrinvest Asset Management, in 2017, practically all the managed (mutual) funds recorded very good returns well above inflation rate. According to Mr. Balgore, mutual funds companies and investors got real returns on investment in 2017 from fixed income funds to money market funds, and equity funds. Almost everything was above inflation. This is a good index that mutual funds are indeed safe in Nigeria.
Increased Returns On Investment Over The Years
Also, Nigeria over the years have witnessed real returns of 20% for certain mutual funds like the equities portfolio. In 2017, for example, all the equity funds in the Nigerian capital market none did less than 30% return. Afrinvest equity fund made about 41 percent return year-to-date for about 500 million portfolios. This again indicated that mutual funds are safe in Nigeria.
Better Foreign Policy and Improved Trade/Production
Besides, the foreign exchange market keeps bringing good news to Mutual funds companies, fund managers and investors till date. This is hugely attributed to the semi-easing of the Foreign Strength Policy. As a result, it’s been very good for the market and so it is expected or projected that if the trend continues coping with the fact that all prices is going up, production in Nigeria is still goods, and crude oil production moves up or stays at 2.2 million barrels per day and every other factor, the Mutual funds market will continue to flourish in Nigeria.
Composite Participation and Players
Nigeria’s mutual funds market is today very robust. The people or entities in the market at the moment who want mutual funds comprised the big guys (i.e. the elites), the middle-class who have some money to put aside, the young guys who are say in the telecom and other industries who want to buy some properties very quickly down to the trader by the roadside.
Reduced Entry Fee
Unlike in the past, there is almost every category of investor in the market today from the high net worth individuals who need customized services to people who can invest as low as N5000. Today, a lot the retail business owners are embracing mutual funds. Also, the minimum entry level has reduced from about N50,000 to N100,000 or more to around N5000.
For example, there is an Afrinvest money market fund called the Afrinvest Bluetooth fund and the minimum that is needed to subscribe to this fund is N5000. This makes it more affordable because many people want to invest and secure tomorrow starting with the little that they have at the moment.
So, Are Mutual Funds Safe in Nigeria? My Virdict!
Are mutual funds safe in Nigeria? The answer is YES! This is because of the noticeable increased returns on investment over the years, better foreign policy and improved trade/production, composite participation of a wide selection of the society and reduced entry fee which makes is easy for more people especially those in the Small and Medium Enterprises (SMEs) to participate in Mutual funds in Nigeria. With increased financial literacy in investment and a wider understanding of the capital market operations, Nigeria will continue to experience an increased patronage in mutual funds.