How to Invest In Mutual Funds in Nigeria – Comprehensive Guide for Beginners

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This article explains all you need to know for those who wish to invest in Mutual Funds in Nigeria.

If you wish to invest in Mutual Funds in Nigeria, you should know all about it properly before taking a dive and parting ways with your money. Mutual Funds are defined as an investment entity that pools money from several investors with the aim of investing in money making opportunities like shares, treasury bills, bonds, and etc. All of them can be termed a portfolio of investments).

When profit is derived from the diversified stream of investments, they are shared with all investors annually, quarterly, or monthly as agreed on the contract signed.

These questions and answers would help guide those who wish to invest in Mutual Funds in Nigeria

invest in Mutual Funds in Nigeria

Who are those who operate the Mutual Funds?

These mutual funds are operated by investment firms who know much about the capital and money market. The investment sections of banks, brokerage firms are the ones who operate the Mutual funds for their clients. So if you wish to invest in Mutual funds, you should know that your money is in good hands.

Is it different from firms who trade in stocks?

The difference between a stockbroking firm (A firm who has the license to buy and sell stocks) and mutual fund operators is that while the stock brokerage firm seeks your approval before using their license to buy/sell shares on the stock market, mutual fund operators don’t seek your approval. They use their jurisdiction to know exactly which investment would yield the most profit, and they invest.

For the stock brokerage firm, you as the investor would keep tabs on the market value of shares, and make decisions, while mutual fund operators save you all those stress and still make money for you. So when you decide to invest in mutual funds in Nigeria, all you need is just your capital, and they help you with the rest.

Are Stocks the only investment for those who invest in Mutual Funds in Nigeria?

Stocks aren’t the only investment portfolio for those who wish to invest in mutual funds in Nigeria. Mutual funds invest in a diversified pool of investments, and they can be categorized in two;

Capital Markets

This capital market centres on Bonds, Stocks (Shares). They are traded on daily basis. So when you invest in mutual funds in Nigeria, your money might be invested in stocks and bonds. The brokers hope that the value of shares would go up higher, which in turn would yield a profit when sold.

Money Market

The money market involves Treasury Bills, Commercial Paper, and Certificate of deposit, etc. These investment portfolios mostly involve you investing a certain amount, which would yield a specific interest at a given period of time. The money market is more secured than the capital markets investment.

N.B: Most mutual funds investors usually outline the portfolio your money would go into before you deposit your money. It can be found in the prospectus given to you before you deposit.

There are three main categories of funds in the mutual fund market

difference to note before you invest in Mutual Funds in Nigeria

Take note of the difference

Equity Funds:

These mutual funds invest mainly in stocks and the shares of companies quoted.  Equity funds are characterized by high returns but with high-risk potentials. This means that you are more liable to lose your capital in the first place.

Fixed Income Funds

These are funds that are invested in fixed income securities. Fixed income securities are investments that give out a fixed ROI after a specific period of time.

E.g. when you invest in treasury bills which are offered by the government, you get an interest of 10% of your original deposit after a year.

When you invest in mutual funds in Nigeria that are fixed income, the brokers’ lookout for safe investments that can guarantee a good stream of income. This suits long-term investors looking for good ROI in the long run. You need to ask the investment company where they plan to invest your deposits in.

Fixed income funds are generally safe, as they involve investing in government securities. Because of that, the returns are generally low.

Mixed-Income Funds

This is the combination of the equity funds and the fixed deposit funds. Because they are diversified in nature, they often yield very low returns alongside low risks.

Who are those who should invest in Mutual Funds?

The Mutual Funds investments are for those who don’t have the time and chance to invest in the capital and money market. It creates an opportunity for those who don’t know about selling and buying of securities to also invest in the market.

Basically, Mutual Funds’ investments are basically designed to encourage saving for the future. Mutual Funds also gives you an opportunity to invest in a portfolio of heterogeneous instruments, rather than putting all your eggs in one basket.

Example, if you invest 100k in Mutual Funds, your money is spread across several secured portfolios like bonds, treasury bills, etc.

explanation on how mutual funds works in Nigeria

This is a brief explanation of how mutual funds work

What is the minimum amount to invest in Mutual Funds

There is no specific minimum amount when you wish to invest in Mutual Funds in Nigeria. Different investment firms have their own minimum balance to start up their Mutual Funds investment programs. Some can be as low as N5,000, N10,000, even up to N1,000,000 Naira.

Can you lose your money when you invest in Mutual Funds in Nigeria?

Like other businesses, Mutual Funds are also exposed to the same risks and rewards of making and losing money. The truth is that no company will tell you that they have the ability to lose money. Most of the investment managers already have the experience needed, and they know their capabilities and track records. You should also take note of the returns they have promised to their investors.

If you are interested to invest in Mutual Funds in Nigeria, these are the 10 best portfolios in the country.

Feel free to ask questions using the comment section. Remember to subscribe for more posts like this.

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Obinwanne Umunna
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