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Mutual Fund: Nigerian investor discloses his 10 years investment that nosedived 

Before you invest in a Mutual Fund, you need to read the experience of a Nigerian Researcher, Solomon Udoh, so you won’t get your fingers burnt.

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

Before you invest in a Mutual Fund, you need to read the experience of a Nigerian Researcher, Solomon Udoh, so you won’t get your fingers burnt. Udoh invested N10,000 monthly for 10 years only to get less than he would have had if he had just saved the money for that same period.

Udoh’s disclosure provoked reactions from Nigerians who pointed out the problem with Mutual Funds and how to properly invest.

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Udoh disclosed his disappointment in a post via his Twitter account, @laz_inc, with images to back his claim. In the post, Udoh stated that Nigeria as an entity defies all logic one could possibly think of after his balance from the N10,000 monthly investment of 10 years in ARM Discovery Fund showed N936,621.

What you need to know about Mutual Funds

Mutual Funds are pools of money collected from many investors for the purpose of investing in stocks (Equity), bonds, derivatives. Mutual funds are owned by a group of investors and managed by professionals (ARM).

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The types of Mutual Funds are explained below 

Money Market Funds: Money market funds invest in short-term fixed-income securities. Example of short-term fixed-income securities would be government bonds, Treasury bills, commercial paper, and certificates of deposit. These types of fund are generally safer investment but with a lower potential return than other mutual funds.

Fixed Income Funds: Fixed income funds buy investments that pay a fixed rate of return. This type of mutual fund focuses on getting returns coming into the fund primarily through interest.

Equity Funds: Equity funds invest in stocks. Furthermore, there are different types of equity funds, this includes, funds that specialize in growth stocks, value stocks, large-cap stocks, mid-cap stocks, small-cap stocks, or a combination of these stocks.

[READ MORE: A guide to how Mutual Funds work in Nigeria]

Balanced Funds: Balanced funds invest in a mix of equities and fixed income securities – typically in a 40% equity 60% fixed income ratio. The aim of these funds is to generate higher returns but also mitigate risk through fixed income securities.

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Index Funds: Index funds aim to track the performance of a specific index. For example, the S&P or TSX. Index funds follow the index and go up when the index goes up and goes down when the index goes down. Index funds are popular as they typically require a lower management fee compared to other funds (due to the manager not needing to do as much research).

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Speciality Funds: Specialty funds focus on a very small part of a market such as energy, telecommunications, healthcare, industrials, etc.

The ARM Discovery Fund: Contrary to the expectations of Udoh, a statement by ARM Investment Manager, explained that the investment product is only suitable for investors that want high capital growth over a long term and the strategy adopted by the firm is to invest in equity and real estate.  

Unlike the fixed income securities, which Udoh wanted, as investors’ capital is guaranteed, investing in the equity market does not guarantee whether the capital would be intact or not. Here, movement of share prices is determined mainly by economy policies, operations of the companies and its liquidity status among others.

Considerations before investing in Mutual Funds: Before investing in any mutual fund, the investor has to consider the features of the fund and the objective for investing in the fund as an investor. The investor should ascertain if his investment objective matches the features of the fund.

Conclusion

Conclusion: Before making investment decisions, investors are expected to seek advice from market operators to avoid getting their fingers burnt like Udoh.  

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In latter’s case, all he wanted was an investment that would earn him returns or at least guarantee his investment capital and not the one that depletes his fund.  

While it is worthy of note that investing in Mutual Funds like ARM Investment does not necessarily mean a wrong move (depending on the area one looks at it), consulting an operator/expert helps sharpen one’s understanding of the markets and guide against losing fortunes.  

On the flip side, this event has shown how poorly educated Nigerians are about Investment products and there might be a need to increase effort in improving financial literacy.

Reactions trail Udoh’s disclosure

Udoh’s post generated reactions from those with similar issues, those with better knowledge about mutual fund and those who needed clarity as to the miracle that happened to Udoh’s money.

Those with similar stories

According to one @_Nosa_, who reacted to Udoh’s statement, last year, he invested N20,000 into Stanbic’s Equity Fund, but the value has dropped to N14,382. Nosa said he’s trying to end the investment, “To liquidate, I have to go to a branch so we might have to hit N10,000 before I pull the plug.”

Those with better Mutual Fund knowledge

 

Those seeking clarity

And the funny reactions

 

Olalekan is a certified media practitioner from the Nigerian Institute of Journalism (NIJ). In the era of media convergence, Olalekan is a valuable asset, with ability to curate and broadcast news. His zeal to write was developed out of passion to shape people’s thought and opinion; serving as a guideline for their daily lives. Contact for tips: fakoyejo.olalekan@nairametrics.com.

4 Comments

4 Comments

  1. Stanley

    November 15, 2019 at 5:46 pm

    Capital markets investments just like every other business does not have guaranteed results anywhere in the world. People should know that while some people are making losses, others are also reaping profits. And profits today are no guarantees for future profits. Some people enter the market and expect quick returns immediately, and are shocked when their investments drop and quick to offload even with great losses when they could have reaped profits had they been a bit more patient. Moreso, the Nigerian security market is not advanced yet, hence you can’t leave your investments unattended to, expecting to harvest profits after 10yrs. Track your investments and pull out your money when it has gained reasonably and wait for another low period to return to the market if you wish to.

  2. Bassey Essien

    November 17, 2019 at 9:13 am

    Investment in the Capital market is generally risky following the performance of the general economic conditions of the country. The Nigerian economy particularly hasn’t done well in the recent past particularly in terms of equity.
    In investment decisions, it is important to get advice from those who know better than we do as we can’t possibly know it all.
    In my opinion, fixed income fund would have been a better option considering his risk appetite. The returns would not have been fantastic over the original sum but he would have had something to show for his investment.
    It is important that investment managers open up to their clients not only about the upside potentials but the downside risks as well so it does not come to them as a surprise when the investment falls below expectations.

  3. Richard

    November 17, 2019 at 3:51 pm

    Bros, at least your cry will not sound as loud as that of our brethren that did MMM? Change still remain for you!

  4. Omolola

    November 18, 2019 at 1:16 pm

    The problem is a lot of Nigerians don’t understand how investment works. One of the biggest risk in investment is not understanding the instrument you’re investing in. Financial literacy is a big issue

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Business News

IMF advises banks to suspend dividend payment

However, halting dividend payments may not go down well for many retail and institutional investors, who rely on bank dividends for regular income.

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In an article published on its website, International Monetary Fund (IMF) Managing Director, Kristalina Georgieva, advised banks to halt dividend payment for now. According to her, with the expectation of a deep recession in 2020 and partial recovery in 2021, banks’ resilience will be tested. Therefore, having in place strong capital and liquidity positions to support fresh credit will be essential.

According to the article, one of the steps needed to reinforce bank buffers is retaining earnings from ongoing operations which are not insignificant.

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IMF staff calculate that the 30 global systemically important banks distributed about US$250bn in dividends and share buybacks last year.

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In a circular dated January 31, 2018, the Central Bank of Nigeria (CBN) stipulated new conditions for eligibility of Nigerian banks to pay dividend and the quantum of dividend to be paid out by banks who are eligible. Prior to the release of the circular, dividend payout policy for Nigerian banks had been spelt out in Section 16(1) of BOFIA 2004 (as amended) and Prudential Guidelines for DMBs of 2010. The circular provided guidelines and restrictions around divdidend payout for banks based on NPL ratio, CRR levels, and Capital Adequacy Ratio (CAR).

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However, there were no regulatory restriction on dividend payout for banks that meet the minimum capital adequacy ratio, have a CRR of “low” or “moderate” and an NPL ratio of not more than 5%. However, it is expected that the Board of such institutions will recommend payouts based on effective risk assessment and economic realities. Indeed, current economic realities demand caution.

Current economic realities mean that banks face asset quality threats, further devaluation threat which may impact capital in some cases, and lower profits which in turn affects the quantum of capital retained. Ideally, these should reflect in NPL ratio and CAR ratio and should immediately restrict banks’ ability to pay dividend. However, there is usually a time lag before these ratios begin to reflect the new economic realities. Therefore, IMF’s advise may come in handy for many banks.

(READ MORE: Software security limitations cited as major reason for Covid-19 bank rush)

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That said, halting dividend payments may not go down well for many retail and institutional investors, who rely on bank dividends for regular income. Banks like Zenith and Guaranty Trust have a good history of consistent dividend payment with attractive yields which is a major attraction for many shareholders.

IMF advises banks to suspend dividend payment

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Economy & Politics

CBN reduces MPR to 12.50%, holds other metrics

Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 13.50% to 12.50% and retains CRR at 27.5%, Liquidity ratio at 30%.

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The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 13.50% to 12.50%.

Governor, CBN, Godwin Emefiele, disclosed this while reading the communique at the end of the MPC meeting on Thursday in Abuja.  Meanwhile, other parameters such as the Cash Reserve Ratio  (CRR) remained at 27.5%, Liquidity ratio at 30%.

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READ ALSO: Bankers decry rise in public debt, weak economy

Highlights of the Committee’s decision

  • MPC cuts MPR by 100 basis points to 12.50%
  • CRR stood at 27.5%
  • The Liquidity Ratio was also kept at 30%

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READ ALSO: Nigeria’s total debt to hit N33 trillion – Senate

According to Emefiele, the decision of the MPC to reduce the Monetary Policy Rate  was informed by the impact of the Covid-19 pandemic on the economy, increased inflationary pressure, restrictions in international trade and more.

He highlighted the decline in the nation’s GDP as well as the decline in the manufacturing and non-manufacturing purchasing index which were attributable to slower growth in production, rate of unemployment, amongst others.

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On reopening of the economy, Emefiele emphasised the need for Government to work towards a gradual reopening in line with recommendations of the Presidential Task Force (PTF) and advice from medical experts, insisting that efforts must be directed at saving not only lives but also livelihoods. He said,

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“This is to enable the resumption of economic activities necessary to stimulate growth, accelerate the pace of recovery and restore livelihoods, particularly the vulnerable in our society.

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“With respect to output, the Committee urged the Federal Government to continue exploring options of partnership with the private sector to fund investment in infrastructure. This would aid employment generation, support production and boost output growth.”

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Economy & Politics

Buhari seeks approval from green chamber to borrow fresh $5.5billion

FG also seek approval for the revised 2020-2022 mid-term expenditure framework (MTEF) which became necessary as a result of the crash in crude oil prices and the cut in the production output.

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President Muhammadu Buhari is seeking the approval of the House of Representatives to borrow fund to finance capital projects at the federal and state (to support state governors) levels in the 2020 budget.

This request was disclosed via the official twitter handle of the House of Representatives.

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The president’s letter, which indicated that the fund would be sourced locally and internationally, was read on the floor of the House of Representatives by the Speaker, Femi Gbajabiamila, during plenary on Thursday, May 28, 2020.

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In the letter to the lower chamber, Buhari, is also seeking the approval for the revised 2020-2022 mid-term expenditure framework (MTEF) which became necessary as a result of the crash in crude oil prices and the cut in the production output.

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Although the tweet did not contain the total amount of loan that is being requested, reports suggests that the President is seeking approval to borrow the sum of $5.513 billion from external sources to finance 2020 budget deficit and support state governments to meet challenges caused by the coronavirus pandemic.

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Details shortly…

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