Investors in the Nigerian capital market invested 1.291 trillion naira in Nigerian mutual funds called collective investment schemes in 2021.
Collective investment funds, also known as mutual funds, are joint investment vehicles through which investors pool funds and invest in a selected basket of securities in order to maximize returns and reduce the risks.
Mutual funds are typically managed by fund management companies registered with the Securities and Exchange Commission (SEC) alongside other professional parties such as trustees and custodians who provide additional oversight of fund management. .
Mutual funds are generally classified according to the asset class that is the primary objective 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.
Data released by the Security and Exchange Commission (SEC) as of December 10, 2021 showed that the net asset value of mutual funds stood at 1.291 trillion naira from 1.494 trillion naira reached in December 2020, a decrease of 203 billion naira.
The decline is attributed to the bearish performance of the stock market given the sharp rise in yields on money market securities.
Like most other years, 2021 brought some fascinating developments to financial markets, especially as the path of the pandemic was far from certain.
In the bond market, yields rose earlier than expected in the first half of 2021 before stabilizing in the second half.
Bearish sentiments in the fixed income (FI) market were mainly due to the dual effect of the upward revaluation of OMO bills by the Central Bank of Nigeria (CBN) to attract REITs and the frontloading of government loans. , resulting in a substantial increase in the supply of domestic debt instruments.
As a result, the strong start to the year in the equity market was hampered by the upward retracement of FI returns before impressive corporate earnings improved market performance in the third quarter of 2021.
The fund review showed that money market funds, which invest primarily in money market instruments such as treasury bills, remain the largest group of mutual funds, with investors investing 543.945 billion naira.
Bonds and fixed income funds were valued at N375.555 billion, while dollar funds comprising Eurobonds and fixed income securities were valued at N256.903 billion.
In addition, real estate investment trusts, mixed funds, Sharia compliant funds, equity funds and ethical funds valued at N50.173 billion, N28.863 billion, N17.978 billion, N15.528 billion. and 2.490 billion naira respectively.
Capital analysts noted that mutual funds are growing rapidly and quickly becoming the default destination for Nigerians’ savings, saying that “just as pension funds started to take off a decade ago, mutual funds are now growing rapidly.
“Mutual funds are fast becoming a big part of the savings industry,” they added.
Cordros Capital, which manages mutual funds, said group investing allows investors to reduce their risk and maximize the potential for higher returns by investing in a mix of asset classes consistent with their risk horizon. and their goals.
Cordros Capital said that mutual funds allow people to plan, save and invest to achieve their dreams and goals, including socio-economic and political goals such as getting married, buying money. ‘a home, starting a business, and pursuing education, among other things.
According to the investment management group, long-term investing involves setting goals and constantly investing to achieve them, while such long-term investments help people achieve their life and long-term goals.
HighCap Securities Limited Managing Director David Adonri said investing in mutual funds has been widely adopted as a good investment platform in developed economies and serves as a vehicle for raising capital for economic development.
He noted that investors are now adopting mutual fund instruments to diversify their investment risks, especially in the stock market.
He explained that since investments in mutual funds are like investments in a basket of securities.
He added that for the performance of the year, mutual funds performed well as most funds were structured around stocks and money market instruments, saying many of them performed very well in the third quarter ( Q3) and that there is also a recovery in the last quarter. .