Nigeria’s Mutual Funds Attract N1.29tr Investments In Capital Market

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Investors in the Nigerian capital market invested N1.291 trillion in Nigerian mutual funds known as collective investment schemes in 2021.

Collective investment schemes, also known as mutual funds, are joint investment vehicles through which investors pool funds and invest in a chosen basket of securities to optimise returns and reduce risks.

Mutual funds are typically managed by Securities and Exchange Commission (SEC) registered fund management firms alongside other professional parties such as trustees and custodians that provide additional supervision on the fund management.

Mutual funds are usually categorised by the class of assets that forms the primary focus of their investments. Thus, there are equity funds, money market funds, bond funds, real estate funds, ethical funds, index funds, mixed funds and infrastructure funds, among others.

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Data released by the Security and Exchange Commission(SEC) as of December 10, 2021 showed that net asset value of mutual funds stood at N1.291 trillion as against N1.494 trillion achieved in December 2020, showing a decline of N203 billion.

The decline is attributed to the bearish performance recorded in the stock market given the sharp uptick in yields of money market securities.

As with most other years, 2021 brought fascinating developments in the financial markets, especially as the path from the pandemic was far from certain.

In the fixed income market, yields advanced earlier than anticipated in H1 of 2021 before stabilising in the second half.

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The bearish sentiments in the fixed income (FI) market were driven mainly by the twin effect of upward re-pricing of OMO bills by the Central Bank of Nigeria (CBN) to attract FPIs and frontloading of government borrowings, which led to a substantial increase in the supply of domestic debt instruments.

Consequently, the strong start to the year in the equities market was derailed by the upward retracement in FI yields before impressive corporate earnings lifted market performance in the Q3, 2021.

Review of the Funds showed that Money market funds, which invest mainly in money market instruments such as treasury bills, remain the largest group of mutual funds, as investors put in N543.945 billion.

Bonds and Fixed Income Funds amounted to N375.555 billion, while Dollar Funds comprising Eurobonds and Fixed Income valued at N256.903 billion.

Also, Real Estate Investment Trusts, Mixed Funds, Shari’ah Compliant Funds, Equity Based Funds and Ethical Funds valued at N50.173 billion, N28.863 billion, N17.978 billion, N15.528 billion and N2.490 billion respectively.

Capital analysts noted that Mutual Funds are growing rapidly and are quickly becoming the default destination for Nigerians’ savings, saying “just as the Pension Funds began to take off a decade ago, Mutual Funds are now growing fast.

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“Mutual Funds are set to become a large part of the savings industry,” they added.

Cordros Capital, which manages mutual funds, said collective investments allow investors to reduce their risks and optimise the potential for higher returns by investing in a mix of asset classes in line with their risk horizon and targets.

Cordros Capital stated that mutual funds allow people to plan, save and invest towards their dreams and goals, including socio-economic and political goals such as a wedding, buying a house, starting a business, and furthering education among others.

According to the investment management group, investing for the long term involves setting goals and consistently investing in achieving them, while such long-term investments help people to achieve their lifetime and long-term goals.

The managing director of HighCap Securities Limited, David Adonri, said that mutual fund investment has been widely embraced as a good investment platform in the developed economies, and serves as a vehicle for the mobilization of capital for economic development.

He noted that investors are now embracing mutual fund instrument to diversify their investment risks, especially in the equities market.

He explained that since investments in mutual funds are like investment in a basket of securities.

He added that for the year performance, mutual funds have performed well as most of the funds were structured on equities and money instrument, saying a lot of them performed very well in the third quarter (Q3) and also there is recovery in the last quarter.

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