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In our last piece on the need to understand mutual fund prospectuses, we did mention that investors should pay attention to whether a mutual fund is a load fund or non-load fund.

In this article, we will look deeper into what a load and non-load fund are and their implication for mutual fund investors. Generally speaking, a load is the fees investors pay for purchasing or selling mutual funds. The fees can be charged at purchase, in which case such fund is referred to as a front load fund, and it can be charged at the time the investor is selling the mutual funds, and this made such funds, back-end funds.

However, there are funds that do not charge fees at purchase or selling point and those are the non-load funds.

A look at the various prospectuses of various funds in Nigeria shows that Nigerian mutual funds are predominantly front-load funds. This is because Nigerian mutual funds charge what has come to be known as organisational or floatation or offer cost.

In countries like the US, this upfront fee is called 12b-1. This fee is usually subtracted from the total money realised from the total offer proceeds. While countries like the US control how much this upfront fee should be, by regulatorily pegging it to between 0.75% and 2%, it is not very clear if such regulatory control is in place in Nigeria.

Our research has revealed that the upfront fee charged by fund managers in Nigeria ranges from 1.5% to 3% and runs into millions of Naira.

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For example, 2.94% of Lotus Halal Fixed Income Fund offer proceeds, representing N29.439 million was used to offset offer costs while Cordros Money Market fund charged 2.28% of its proceeds to offer costs which amounted to N22.81 million.

Where to find this fee on the prospectus

For anyone who wants to verify or find out what the offer cost or upfront fee for their mutual funds of interest is, look for a section of the prospectus that is headed, “Use of proceeds”.

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This will tell you how much floatation or offer cost the fund is bearing, and it will also tell you where the payment will be made from.

If it says from the proceeds of the fund subscriptions, then it means that what will be put to work for you is the net balance after the offer cost has been subtracted, then it is a front load or upfront cost.

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Implications for the investor

The implication of these upfront charges is that what the fund managers invest on your behalf is not 100% of the subscription you ordered for, rather, it is net of the upfront fees.


For example, if you had invested N100,000 in Cordros Money Market fund which 2.28% offer cost, N2,280 would go to pay for the offers costs while N97,720 will be invested for you. That principle applies to every other fund that has offer costs, and it looks like it is all mutual funds in Nigeria.

So, the implication of this front load on your mutual fund is that it lowers the size of your investment because it gets deducted from your investment amount. By lowering your investment size, it reduces your ability to earn more money from your investment.

What Should be Done

In countries like the US where there are load and non-load funds, investors can easily choose not to pay the upfront fees by not investing in the front load funds. But unfortunately, all mutual funds in Nigeria, to the best of my knowledge, carry this load and that makes it inescapable for investors who want to invest in mutual funds. But the regulatory authorities can do something, by either abolishing the loads or reducing their size to a maximum of say 0.75% of proceeds.

Fund managers can also help by coming up with no load funds after all they charge management fees. They should instead increase their performance fee charge which will be a win-win situation especially for the investor because performance fee is based on the profitability or performance of funds and not based on investments size or proceeds.


Mutual funds are still new in Nigeria and all efforts should be made by all the players in the industry to encourage its growth.


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