What is a Mutual Fund?
Mutual funds investment is a kind of investment that involves multiple investors, cash is drawn from these investors and invested in a portfolio of investments. These investments Include shares, treasury bills, bonds, and others; when profit is made, it is shared among the investors as described in the fund agreement.
To invest in mutual funds in Nigeria, you would need to do so with the help of a professional investment firm in Nigeria. Investment firms like banks, stock brokerage firms have technical staffs who are well informed in the Nigeria capital and money market.
Mutual fund investment is made mainly on these two markets; the capital and money market.
In the money market, mutual fund investments are made on instruments such as commercial paper, treasury bills, certificate of deposits and some others. They are debt notes that incur a percentage interest at the end of the maturity period.
In the capital market, mutual fund investment are made on shares (stocks) and bonds, these instruments are traded daily on the market. When the value of these instruments appreciates, the investment will yield profit as they are sold.
If you plan on investing in mutual funds with any investment firm, you would be the one to decide if you want to invest in the money market, capital market or both.
Categories of Mutual Funds
Mutual funds investment in Nigeria can be grouped into 3 main categories and they are;
Fixed Income Funds:
Just as the name implies, these are investments that pay a fixed return, they are also called fixed-income securities. A very popular example of a fixed income fund is investing in treasury bills, the interest rate is stated and it is unchanged no matter the amount of money that is invested. These fixed income funds are considered the safest type of investments as they come mostly from the government which makes profit guaranteed. To profit more from fixed-income funds, you would need to make a long term investment.
These are investments in shares and stocks of companies when quoted in the market. They are very profitable, more profitable than fixed-income funds but they are also very risky. In investing in equity funds, focus on reputable companies who are sure to pay you your returns.
Mixed-income funds investment is a combination of equity funds and fixed income funds. They are usually recommended when investing as they carry very low risk but on the other hand, they offer low returns.
A lot of Nigerians invest in Mutual Funds and a lot of them are making huge profits off it as well. However, just as it is with every other investment, there is always a risk of losing money. If you choose to invest in mutual funds, you would hardly be performing any task other than providing money for the investment; your investment firm will handle every other thing on your behalf. For this reason, it is important that you register with a trusted and reputable firm.