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A guide to how Mutual Funds work in Nigeria

A guide to how Mutual Funds work in Nigeria



mutual funds

This article breakdown investing in Mutual Funds in Nigeria.

What is a Mutual Fund?

A mutual fund can be defined is an entity that pools cash from a variety of investors for the sole purpose of investing the cash in shares, bonds, treasury bills etc (all together called a portfolio of investments). The profit derived from the diversified pool of investments are shared to investors in the funds annually or semi annually or as stipulated in the fund prospectus.

Who Operates a Mutual Fund?

Mutual Funds are operated by professional investment firms made up of people who are savvy with the money and capital market. Mutual Fund, like in Nigeria can be operated by the Investment arm of banks, stock brokerage firms, investment banks etc.

How is it different from a stockbroking firm?

A stockbroking firm is simply a company that on your behalf and instruction uses its license to buy and/or sell shares on the stock market. With a stock brokerage firm you give them an instruction to buy or sell shares of your choice. You also keep tabs of the performance of your stocks on a daily basis and monitor its performance independently. For a Mutual Fund however, they determine which Investment decisions to make rather than you giving instruction as to what shares should be bought for you or which you intend to sell. The shares you buy with the Mutual Fund is that of the fund and not that of the companies quoted on the stock exchange or indeed any quoted investments.

[Read Also: These poor investment decisions has ruined lives]

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Do they only invest in stocks?

Off course not. Mutual Funds mainly invest in broad and diversified pool of investments. However these can be grouped into two;

A –  Money Market

B – Capital Markets

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Money Market – Example of Money Market  instruments are Treasury Bills, Certificate of Deposits, Commercial Paper etc. These instruments are mostly debt note with a promise to pay a stipulated interest rates and the principal at a predetermined date.

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Capital Markets – Capital Markets are markets where Bonds, Stocks (Shares) are traded on a daily basis. So, a Mutual Fund can also use your money to invest in stocks and bonds. For example, when they invest in shares they hope that the value will appreciate thus increase the value of their fund or making them a nice profit when they sell the shares.

But please note, most mutual funds usually outline the type of investments they hope to invest your money in. This can be found in their prospectus.

Do All Mutual Funds invest in the same categories of funds?

There are mainly 3 categories of funds they typically invest in

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I. Fixed Income Funds – These are funds that are meant mostly to invest in fixed income securities. Fixed Income Securities are investments that pay a fixed return on an investment. For example, treasury bills offered by the Government are issued at a coupon (rate) of say 10%pa. Meaning, they pay an interest of 10% on any amount invested. Mutual Funds that are Fixed Income Related look out for safe investments that can guarantee a good income stream. They mostly suited for investors with a long term view towards returns. Fixed Income Funds are safe investments as it mostly involves securities in government securities. Due to the nature of government securities their returns are typically low.

II. Equity Funds – These are Mutual Funds that invest mostly in stocks and shares of companies are quoted. Some funds can also use fund assets to subscribe shares for private placements. Equity Funds offer high returns but are associated with high risk.

III. Mixed Income Funds – Mixed Income funds are a hybrid of Equity Funds and Fixed Income Funds. Because of their diversified nature, they often offer low risk for investors. Low risk as usual is associated with low returns.

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Why Should I even Invest in them?

Mutual Funds afford people who do not have the time to invest in the money and capital market or do not know much about the business of buying and selling securities an opportunity to invest and make money. It also gives them an opportunity to save for the futre. By investing in mutual funds you have an opportunity of investing in a portfolio of heterogeneous instruments rather than having your money in just one basket. For example, your N100k investment in a single mutual fund can represent an investment in bonds, stocks, treasury bills etc.

How Much Can I Give them?

Mutual Funds typically have an investment band depending on the nature of the fund. Some can be as low as a minimum of N5,000, whilst some can be N100,000 and others N1,000,000.

Is it Profitable?

Like a every other business Mutual Funds are also exposed to the same risk and rewards that can determine whether they make or loose money. But since no business originally sets out to loose money they will often tell you that they are profitable. However, you can know how profitable a mutual fund is or can be if the fund owners already have a history. Most of the managers already have experience in running funds and so must have track records of their performance in the past. It is also important that you look at what type of returns they intend to offer to their investors.

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What kind of returns can I expect?

This depends on the your risk appetite. For example, if you have N100k and think you can invest it in any business of your choice and get a profit of N20%, then investing in a mutual fund that promises 14% returns may not be a good idea for you. The return a mutual fund promises you should also be compared to returns one can get on risk free investments such as treasury bills etc. For example, if a Mutual Fund promises a minimum return of 12%pa and Government Pays interest of 14% on Treasury Bills, then investing yourself may just be a better idea. In general mutual funds will typically offer minimum returns that are benchmarked above inflation rates.

Are my returns tax free

No. The profit derived from investing in Mutual Funds are not tax free. Hence you will be taxed on the profit obtained by the relevant tax authority. Losses from Mutual Fund investment can not also be used to offset taxable profits.


What are open and closed mutual funds?

Open Ended Mutual Funds are funds that are open to continuous issuance of shares to investors. Operators of the fund continue to issue shares to the public to buy into the fund. Investors in the fund who do not wish to participate any further will simply resell their shares to the fund at the subsisting Net Asset Value. They can also reinvest in the funds whenever they want. Some Open Ended Funds also mandate you to keep your money with them for a specified period of time before you can sell or request for your money back. Open Funds are very common.

Closed Ended funds on the other hand are funds that have limited number of shares that are sold at the initial public offering (IPO). Once the IPO is over, the fund closes sale of its shares to the public. Being a regulated fund, the shares are traded on the stock exchange like the shares of any quoted company. So, if an Investor decides he want his money back he will simply put up his shares for sale. The share price of a closed fund are determined by both the Value of the Portfolio as well as the sentiments of investors towards demand and supply. This is unlike the Open Funds that are determined by simply dividing the value of the portfolio by the number of shares issues by the fund.

[Read Also: How to avoid borrowing to pay school fees]

Which is best for me?

This is a matter of personal choice and risk appetite. Closed Ended Funds are regulated by the Securities and Exchange Commission as well as the NSE. They play by the rules set by the regulatory authorities. Their share price are also published daily on the pages of Newspapers and can also be found on the internet. Open Funds are mostly unregulated and are not traded on the floor of the stock exchange. They are mostly floated by reputable organisations with a track record for performance.

What is in it for the fund managers?

Fund Managers are in it for the fees they charge you for helping you invest your money. They sometimes charge you fees upfront when you invest and also charge you a fee when they make a profit on your investment. Remember, profits are declared after deducting from revenue, cost of investments, statutory expenses, taxes, etc. Managers can charge fees ranging from 2% – 5% of the Value of the Portfolio


This article was first published on Nairametrics on July 16, 2012. It has been updated with new information.

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.



  1. amina.

    December 13, 2012 at 8:06 am

    Tnxx a lot for the information here. Still need to read theu tho because all these terms are new to me

  2. Lanre Olokun

    January 8, 2014 at 8:05 am

    A very enlightening article.
    With Mutual Funds, killing more than one bird with a stone is possible.
    However, the level of awareness for it is quite low in Nigeria. My observation though.
    Thank you.

    • Ugodre

      January 8, 2014 at 8:46 am

      Good observation. Guess people are still scared of leaving their money in the hands of others. The SEC needs to introduce strong regulations to make it more attractive.

  3. Pingback: The Case of the Accidental Investor | Sisi on a Budget

  4. Anonymous

    September 26, 2017 at 9:42 am

    Thanks its informative…..

  5. Anonymous

    January 19, 2018 at 8:07 pm

    Good information…….thank you


    October 6, 2018 at 5:10 pm

    Well done Ugo. Very simplified and informative, more of what we need in a market that is full of confusing and technical investment debris

  7. Wilfred Michael

    November 12, 2018 at 1:41 am

    Excellent article. Straight to the point and easy to grab.

  8. Chinelo Ugwu

    April 12, 2019 at 11:14 am

    Mutual fund is a blessing. I only wish I knew about it earlier. Thank you so much Ugodre

  9. Temitope

    April 12, 2019 at 11:49 am

    What a good write up and pieces of information. I learned some terminologies in financial institutions.
    Thank you.
    Someday I will become an investor in NSE

  10. Anonymous

    May 13, 2019 at 7:11 pm

    Great job !!! Thanks for the simplicity

  11. Faisal Nassarawa

    September 29, 2019 at 12:22 pm

    I love this article, very informative. I would love to know what are the requirements for setting up a mutual fund in Nigeria.

  12. Anonymous

    November 20, 2019 at 2:03 am

    Thank you, been of much help.

  13. Louis Adoyi

    February 23, 2020 at 5:00 pm

    Where have nairametric been all my life. Good to discover your existence. Nice article, I love the clarity and simplicity of your articles

  14. Mike Yamawo

    May 13, 2020 at 6:40 am

    Lovely, how do I get started.

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Debt Securities

DMO takes advantage of MPR cut, allots a total of N103.81 billion

Debt Management Office of Nigeria (DMO) has issued a total of N103.81 billion worth of bonds.



President Buhari not to blame for increase in debt – DMO DG

In a swift response to the MPC rate cut, the Debt Management Office of Nigeria (DMO) has issued a total of N103.81 billion worth of bonds, which is about 71.59% of the total amount offered. The allotted amount comprises of N66.97 billion, N25.43billion, N6.81 billion, N4.60 billion respectively, for the 10, 15, 25, and 30-year tenors.

Recall that DMO had earlier announced its offering of the Federal Government bond worth N145 billion. The auctioning of the offer took place on September 23, 2020, and it was oversubscribed by N215.22 billion.

According to recent data by the Debt Management Office, verified by Nairametrics; out of the 78, 71,57,104 total bids for the bonds; 50, 13, 7, and 6 bids were successful.

(READ MORE:Nigerian Treasury Bills plunge to 3.39% per annum)

The average yield fell by 7bps to 7.21%, as the yield at the mid-end of the curve contracted the most 13bps to 7.31%. In the short and long end, yields fell by 1bps and 7bps to 4.16% and 9.57% respectively.

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READ: DMO reacts to alleged N1.08 billion corruption scandal rocking the agency

The bond auctioned was oversubscribed by 2.48 times. Bid to cover ratio was highest on the 30-year bond by 35.64 times, offered at 8.92% per annum. The 6-year, 15-year, 25-year, and 30-year bonds were offered at 6%, 8.52%, 8.9%, and 8.94% as against 6.70%, 9.35%, 9.75%, and 9.90% at the previous auction.

READ: DMO discloses facts about Chinese loans to Nigeria, states terms of the loans

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Analysts expect the relatively quiet trend to persist tomorrow, as the bulk of the attention will be skewed towards the bond auction.

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Debt Securities

United Capital Plc lists N10 billion fixed rate bonds

United Capital Plc has listed its N10bn, 5 Year 12.5% Senior Unsecured Fixed Rate Series I Bonds.



United Capital Asset Management explains mutual funds’ positive performance

Today, September 22, 2020, the Nigerian Stock Exchange (NSE) announced the listing of United Capital Plc’s N10 billion, 5 year senior unsecured fixed-rate series bonds due 2025, with a 12.5% interest.

In a statement made available on the NSE website, and signed by Godstime Iwenekhai, Head, Listings Regulation, the medium-term bond will be issued as part of the N30 billion Debt Issuance Programme.

The subscription for the offer will last for twelve (12) days, as the offer will open on the 4th of May, 2020, and close on the 15th of May, 2020.

READ: UBA Plc H1’2020 results, a true reflection of its rightsizing decision? 

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READ: Some experts are uncertain of what to expect from money markets in H2 2020

Summary of the offer

  • Issuer: United Capital Plc
  • Offer date: 28th of May, 2020
  • Maturity date: 28th of May, 2025.
  • Units of sale: 10,000,000
  • Price: N1000 per units offered
  • Coupon rate: 12.5%

Redemption: Semi-annually, and payable in arrears on 28th November and 28th May of each year, up to and including the Maturity Date.

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READ: Savannah Petroleum secures $5 million initial tranche loan

Note: Senior unsecured bonds are a non-convertible corporate bond, that is not subordinated to any other unsecured indebtedness of the related issuer. Hence, it guarantees bondholders a quick payout in cases of default. While a fixed rate bond is a long-term bond, with an already specified coupon rate (Interest).

United Capital Plc, is a leading African financial and investment banking group, providing bespoke value-added service to its client. The firm was incorporated in Nigeria on March 14, 2004.

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Debt Securities

Nigerian Treasury Bill falls to 3.05% per annum

The DMO sold N2 billion on the 91-day paper and N8.385 billion on the 182-day.



Implications of the new CBN stance on treasury bill sale to individuals, Nigerian Treasury Bills Market Witnessed Bullish Run on High Liquidity Last week

The latest data from the Treasury bill auctions concluded today revealed that Nigeria’s 364-day tenor dropped to 3.05%. On the other hand, Stop rates printed lower for the 91-day tenor at 1.09% and 182-day tenor, which went for 1.5%.

At the Treasury bill auction, the Debt Management Office sold N2 billion on the 91-day paper, N8.385 billion on the 182-day, and N148.361 billion on the 364-day bills.

Ladi Bello, a treasury dealer at Nigeria’s Tier 1 bank in a phone chat interview with Nairametrics, spoke on the just-concluded auction.

“At the Primary Market Auction conducted by the DMO yesterday, N159bn was rolled-over across the standard maturities on offer with demand skewed towards the new 1-Yr paper.

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“Stop rates on the short and mid-tenured maturities closed marginally lower than the preceding auction at 1.09% (↓1bps) and 1.50% (↓5bps) respectively, while the 1-Year paper remained unchanged at 3.05%,” Bello said.

Quick facts: The massive disparity between the subscriptions and the offers recorded suggests investors are willing to earn a negative real return, compared to the higher risk in other assets such as stocks and real estate.

Temitope Busari CFA, a leading investment professional in a note to Nairametrics also spoke on the low-interest rates the Federal Government of Nigeria was borrowing with. She said;

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“Yesterday’s Treasury bills stop rates were not far off from expectation and yields will likely continue southwards in the near to medium term.

“Additionally, we might see increased pressure on the short-end of the curve due to the dearth of instruments in the market versus excess liquidity.

“Technically, it’s more beneficial for the Government to borrow at the current levels to enhance our chances of recovery post-pandemic recession. Anecdotally speaking, the current interest rate regime is deemed punitive for savers, considering inflation is currently at 13.22%.”

(READ MORE: Nigerian Treasury Bills plunge to 3.39% per annum)

Basically, the CBN sells T-bills on a bi-weekly basis to investors and it is one of the safest investments available. Interests are paid upfront, with the principal paid in full upon maturity.

Understanding Treasury Bills: Basically, when the government goes to the financial market to raise money, it can do it by issuing two types of debt instruments – treasury bills and government bonds.

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Treasury bills are issued when the government needs money for a short period, while bonds are issued when it needs debt for more than, say five years. The issuance of treasury bills is also used as a mechanism to control the circulation of funds in the economy.

Treasury bills have a face value of a certain amount, which is what they are actually worth. However, they are sold for less. For example, a bill may be worth N10,000, but you would buy it for N9,600. Every bill has a specified maturity date, which is when you receive the money back.

The government then pays you the full price of the bill (in this case N10,000), giving you the opportunity to earn N400 from your investment. The amount that you earn is considered as the interest, or your payment for lending your money to the government.

The difference between the value of the bill and the amount you pay for it is called the discount rate and is set as a percentage.

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