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Pay attention to this when you want to choose the right Mutual Fund

Pay attention to this when you want to choose the right Mutual Fund



Mutual Funds, Mutual Fund gone bad: Nigerian investor discloses his 10 years investment that nosedived , Nigeria’s mutual fund asset value reaches N1 Trillion

I recently received a couple of emails from some people who said they had fallen in love with my writings and wanted to know who the five best mutual fund management companies in Nigeria are.

That got me thinking that there could be others asking that same question either silently or to themselves. As a result, rather than respond to the emails directly, I decided to make what I would have told them available to all through this article.

The answer to this question is neither here nor there and it will be difficult to discuss exhaustively on this, however, in searching for an investment management company or mutual fund, pay attention to the following:

Regulatory Registration and Legal Compliance

All mutual fund investment companies are required to register in Nigeria, so make sure that the company you are looking to choose is dully registered. There are many Ponzi Schemes out there and the Security and Exchange Commission has been doing a good job in calling them out through circulars as soon as they are known, so pay attention to such circulars by searching the SEC website.

[Read Also: Understanding Mutual Fund Fees: Incentive or Performance Fee]

Not only are they required to register, fund management companies are required in Nigeria to own at least 5% of the fund they manage. While it is the role of the regulatory authorities to ensure compliance with this requirement, it does not hurt for you, the prospective investor, to ask if this condition has been met.

Also search the enforcement section of the SEC website to see if the fund management company you are interested in has been penalized or blacklisted for any legal infractions in the fast. Sadly enough, this portion of the SEC website is not currently up to date and it does not hurt to ask the commission some questions. I have on several occasions and they gladly answered.

Transparency and Reporting

It is always good that you gain some clarity into the mutual fund you invest in and that clarity is a function of how transparent the investment company is. So, in choosing a mutual fund

investment company, find out how transparent they are. You can find this information by looking through their website and finding answers to such questions as, are the fund prices on the site current, if not, how stale are such prices, when was the last time the prices were updated.

Do they have the fund factsheet readily available on the sight in a downloadable format, are the available factsheets current, if stale, how stale? What information are contained in the factsheet? Is there information on the risk profile of the fund, historical fund performance, expense ratio, any holdings information, at least top 10 holdings.

Are financial statements for the fund and the company readily available in a downloadable form on the investment management company’s website. Delay or absence of reporting can be an indication of some operational problems. Fund management companies like Stanbic IBTC, FBN Asset Management, Vetiva, Lead, FCAM Wealth Management are about the most transparent while Zenith is the least.

[Read Also: What you should always look out for in a Mutual Fund]

Company’s Stability and AUM

In choosing mutual fund investment company, attention should be paid to how stable the company has been. How long have they been in business, how many funds do they manage, what are their subsidiaries and affiliates. What is the asset under management, has it been growing or decreasing?

If the fund management company lost substantial assets in recent times, find out why because it could be a sign that those already in the funds being managed by this company are bailing out. A fund management company that attracts additional assets especially from existing fund unitholders is indicative of one that generates satisfaction for the investors.

Find out how many unitholders they have for each fund they manage because some funds may have few institutional or high net-worth individuals that the AUM may be high such that the exit of such investors may portend disaster for the company.

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Employee Compensation and Turnover

Every business is as good as the people it employs. Fund management requires intellectual capacity as a lot of analysis, quantitative and qualitative goes into most asset selection, allocation and rebalancing process.

Find out the rate of employee turn over as that could indicate that your fund may be managed by less experienced fund managers. Search such places as LinkedIn and

examine the profile of the fund managers that work for your prospective fund management company.

Find out who the custodian is

Fund Management companies use custodians to help with such things as dividend collection, corporate actions, and making margin payments, if and when required. In most cases, the assets of the fund are held with a custodian.

Therefore, find out who the custodian for your management company of interest is and dig a little deeper into the reputation and service excellence of the custodian. How stable is the custodian, is it registered and well capitalized, because if the custodian happens to go bankrupt, it may impact the fund management company whose asset is in their custody. How many other management companies do they render custody services for and has there been any complaints in the past?

Business Continuity Planning and Disaster Recovery

Fire incidents are anything but common in Nigeria and other places. Those who are old enough to remember can recall what happened to the NITEL towers in Lagos or that of the Cocoa House in Ibadan.

One might say that those are history but what about recent fire incidents. In the present dispensation where terrorism, cyber or September 11 type, has become the order of the day, it becomes important that companies have solid business continuity and disaster recovery plans in place.

Business continuity refers to the ability of a fund investment management company to continue operations in the event of a business disruption while disaster recovery refers to the ability of the company to restore itself back from a disaster event to the point where it was before the disaster occurred. So, find out if your fund investment management company has any business continuity and disaster recovery plan in place because you would want to access your investment even in disaster.


Customer Services and Client Responsiveness

You would want to invest with a company that will be very responsive to your concerns and enquiries. Prompt and courteous response to verbal or written inquiries goes a long way to distinguish one company from the other.

[Read Also: A guide to how Mutual Funds work in Nigeria]

Although this may not be as important as the other points, after all, you may not mind a less cautious account officer as long as your fund gives you so much returns, however, nose around, ask peers, and read what others are saying about investment management companies on different forums.


While the above is in no way exhaustive, it will no doubt help in selecting which mutual fund investment company to go with. Remember that this exercise is not a one off or one time thing, you should, therefore, review and revisit the checks at least once a year with a view to deciding whether to continue investing with your chosen investment management company or to make a switch.

Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. and (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.



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    DEVALUATION: CBN updates website to official rate of N360/$1

    The central bank of Nigeria has devalued its official exchange rate from N307/$1 to N360/$1.



    CBN website states oil price is still $61, Naira under pressure as Nigeria records poor export earnings, 4 key sectors the CBN plans to pump money into

    Just as Nairametrics reported, the Central Bank of Nigeria has devalued its official exchange rate from N307/$1 to N360/$1. The apex bank has now reflected this change on its website signaling a confirmation. The bank is yet to issue a press release to this effect.

    The CBN has now officially devalued by 15% moving from N307/$1 to N360/$1. Depreciation at the “market-determined” I&E window is 5% having moved from N360/$1 to N380/$1

    Devaluation: Nairametrics reported yesterday that the Central Bank of Nigeria (CBN) sold dollars to banks at N380/$1 in a move signifying a devaluation of the currency. Banks trading at the Investor and Exporter (I&E) window bought dollars at N360/$1 from the CBN on Friday, March 20, 2020. The I&E window is the official market where forex is traded between banks, the CBN, foreign investors, and businesses. The central bank typically buys or sells in the market as part of its intervention program.

    The CBN has updated its website with the official exchange rate.

    Nairametrics also got hold of a letter from the CBN to banks informing them of the new exchange rate for dollars flowing from the International Money Transfer Operators (IMTOs). According to the CBN, IMTOs will sell to banks at N376/$1 while banks will sell to the CBN at N377/$1. The CBN will sell to BDC’s at N378/$1 while the BDC’s will sell to end-users at “no more than” N380/$1.

    Single Exchange Rate: A report yesterday also suggested that the CBN also planned to move to a single exchange rate policy for determining the price of the dollar. A senior central bank official who does not want to be identified, said, ‘Today we allowed the rate at the importer and exporters (I&E) window to adjust in response to market developments.’

    The central bank has now made an apparent u-turn after it had initially that the “market fundamentals do not support naira devaluation at this time” detailing reasons why it did not need to devalue.

    Falling oil price: Oil prices fell to under $20 on Friday before climbing back up to settle at $23 per barrel. Nigeria’s Bonny light trades at $26 while the benchmark Brent crude trades at $29 per barrel. In response to the crash in oil price, Nigeria’s announced a cut to its 2020 budget by N1.5 trillion as it faced the reality of a potential drop in its revenues. Nairametrics also has information that state governments are getting jittery about their ability to sustain salary payments as a reduction in their federal allocation “FAAC” is anticipated.

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    Career tips

    Investment options for salary earners

    Investment options for the salary earners
    #Investing #Entrepreneurs #Investment #Salary #Wages



    Investment options for salary earners - bank loan

    Recently, one of the readers of my articles asked to know what investment options are open to salary earners. A salaried individual is like everyone else except that he or she has a fixed monthly income. This implies that their investments and expenses have to be managed strictly according to their fixed monthly income.

    Since salary is assumed to be the only source of income for the salaried, it is advisable that such an individual fortify himself financially before investing so that adverse investment performance will not have untold effect on him and his family. Therefore, if you are a salaried prospective investor, you need to:

    READ: Where to invest N500,000 right now

    Get life insurance

    Most families in Nigeria are single income families so much such that if anything bad happens to the income earner, the family gets shattered, at least financially. Again, given the risks inherent in capital market investments, it is only prudent to have a life insurance as a first step in one’s investment journey. It is very baffling to see many investors very deep into the market, yet they do not have life insurance.

    [Read Also: Understanding the risks in bond investing]

    Life insurance is and should be a basic part of any financial plan. Life insurance is a protection for loved ones against financial hardship arising from the death of a breadwinner. This is even more important today than ever before with high cost of funeral expenses, college education and medical bills. So, the first investment option for a salaried individual is to get a life insurance.

    Prepare for financial emergencies

    Life is full of surprises, emergencies do happen, jobs are lost without notices, and even good investment opportunities emerge sometimes suddenly. There is, therefore, the need for a cash reserve to help weather the financial storms and emergencies when they come calling.

    READ: SEC issues pre-notice on cancellation of certificates of 157 inactive CMOs

    Cash reserves do not only provide for emergencies, they also help to ensure that investments are not liquidated prematurely or at inopportune times to cover unexpected expenses. There are no hard and fast rules on what the exact amount of the required cash reserve should be, but most financial experts and planners will advise that an amount that equals about six months of living expenses be set aside.

    So, as a salaried person, your next investment should be to have a cash reserve. A cash reserve should not necessarily be in a savings account or under the mattress; it could be in an interest-bearing money market account, money market mutual funds with low to zero luck-up period or another form of very liquid investment that is readily convertible to cash without loss of value.

    [Read Also: Understanding the risks in bond investing]

    Know your risk appetite

    As a salaried and fixed income individual, your risk appetite is most likely going to be low as well as your risk tolerance, although your extended family profile could change all that. You need to know or understand your risk tolerance before you engage in any capital market investment.

    Your risk tolerance will and should drive the type of investments you go into. Your risk tolerance depends on your psychological makeup, your current insurance coverage, presence or absence of cash reserve, family situation, and your age among others.

    READ: Here’s what will happen to Nigeria’s insurance sector in the short to medium term

    Talking about family situation, it is reasonable to think that a married individual whose children are still in school will be more risk averse than an unmarried person. On the other hand, older people have shorter investment time horizon within which to make up for any losses. the reason for this is because the older you get the less time you have to work to recoup on losses.

    Jaiz bank

    In that case the risk tolerance of an older man will be less than those for younger folks. Again, the more cash reserve and insurance coverage you have, the more your propensity to take risk. Now having known your risk tolerance based on the underlying factors, you can then define your investment objectives

    [Read Also: Important tips on how to profit in a bearish market]

    Set your Investment objectives/goals

    Having met those essentials above, you are now ready for a serious investment plan or program. A good investment plan starts with investment objectives. Investment objectives are the force that determines what you invest in. Investment objectives range from capital preservation, to capital appreciation and constant income generation.

    Capital preservation as an investment objective implies that you, the investor, aim at minimising the risk of loss by maintaining the purchasing power of your investment. So, if you are risk averse or you will need money from your investment soon for children’s education or for building a house or you are nearing retirement, this should be your objective.

    READ: CBN debits banks N216.1 billion for CRR compliance

    Investors whose aims are to see their investment portfolios increase in real terms over a period of time are better suited for capital appreciation as an objective. This is better for investors that are more risk tolerant and those with more potential to recoup on losses along the way.

    If you are already retired or nearing retirement, and therefore depend on your retirement plan supplemented by investment income, you need an investment that generates income rather than capital gains. In that case, your investment objective should be current income generation. It is always good to have investment goals stated in terms of risk and returns.

    [Read Also: I-Invest generates over N2 billion transaction in less than 6 months]


    Decide on asset allocation

    Armed with the knowledge of your risk appetite and investment objective, you are now ready to decide on what to invest in, and how much to invest in any asset class. This takes you to asset allocation decisions. Asset allocation involves dividing an investment portfolio among different asset classes based on an investor’s financial requirements, investment objectives and risk tolerance.

    A right mix of asset classes in a portfolio provides an investor with the highest probability of meeting his/her investment objectives. Asset allocation is the most important investment decision an investor can make in a portfolio because it demonstrates an investor’s understanding of his or her risk preferences and return expectations.

    READ: How to build a profitable Mutual Fund Portfolio

    It is good to strive for a diversified portfolio. Unfortunately, the Nigerian market does not provide a lot of asset classes for optimal diversification, but diversification can be achieved across sectors or industries within the few asset classes in the Nigerian stock market.

    Decide on how to invest

    There are different ways to invest in the capital market. You can invest directly by making the stock selections by yourself, thanks to the online stock trading platforms that abound the world over. This implies that you have what it takes to conduct the required research and analysis of the companies whose shares or stocks you wish to buy.

    [Read Also: How I Would Invest My Mother’s Retirement Funds]

    It also implies that you have what it takes to know when to sell or add to existing positions. Another method is to have someone “do the heavy lifting” for you. In this case, that someone, often times called fund manager or portfolio manager, does the research and analysis and selects shares that suit your investment preferences, investment objectives, risk tolerance and appetite as well as your investment time horizon.

    This route is most suitable for investors that lack the knowledge and time for the required research and analysis. If you decide to go this route, mutual funds are the best bet for you.

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