As Nigerians navigate economic shifts and market fluctuations in 2024, there is a heightened quest for secure and rewarding short-term investment gains.
Amid numerous options, investors must strategically explore short-term investment avenues.
Short-term investment options refer to financial instruments that can help investors generate returns on their initial investment within a relatively brief period, typically up to a maximum of three years.
The primary goal of short-term investments is to capitalize on opportunities that offer relatively quicker liquidity and potentially higher yields within a shorter timeframe.
Nairametrics has diligently monitored some of the available options in 2024. This overview seeks to equip Nigerian investors with insights, empowering them to make informed and astute investment decisions.
10. Commercial papers
Commercial papers, short-term debt instruments issued by corporations to raise operational capital, feature a maximum tenor of 270 days and a fixed interest rate known as the discount rate.
These papers, attractive investment options, often yield higher interest rates compared to CBN-issued treasury bills.
Beyond the appealing returns, they boast short maturity periods. Typically issued by credit-worthy Nigerian companies, their credibility is affirmed by credit rating agencies.
In 2023, MTN Nigeria raised about N375 billion through seven issuances of commercial papers, with interest rates ranging from 10.41% to 14.33%. Dangote Cement also raised N221 billion through commercial papers in different issuances whose interest rates ranged between 9.31% and 12.70%.
Also read: Nigerian companies raised N1.5 trillion through commercial papers in 2023 – Nairametrics
9. Nigerian Treasury Bills
Nigerian Treasury Bills (NT-Bills) represent short-term debt instruments issued by the Central Bank of Nigeria (CBN) on behalf of the Federal Government, featuring 3-month, 6-month, and 12-month maturity rates.
Serving dual roles, these bills act as instruments for the Federal Government to finance budget deficits and as a monetary policy tool by the CBN to regulate inflationary pressures.
The credit rating of the Federal Government backs them, rendering them risk-free.
NT-bills are offered through biweekly primary market auctions on Wednesdays, with a minimum investment of N50,001,000. Following the auction, the bills enter the secondary market on FMDQ, operational Monday to Friday (10 am-4 pm).
Interest rates, determined at the auction based on received bids are dependent on the range of bids received by the CBN. For example, the range of bids on the 91-day bills during the last set of NT-Bills auctions in 2023 was between 3.3% and 17.01%.
However, the CBN set a stop rate at 7%, meaning only bids between 3.3% and 7% would be allowed to invest in those bills at an interest rate of 7%.
The interest rates vary with short-tenured T-bills (91-day) typically offering lower rates, while long-tenured bills (364-days) provide higher interest rates.
During the December 27, 2023, auction, 91-day bills had an interest rate of 7%, 182-day bills, 10%, and the 364-day bills, 12.5%.
8. FGN Saving Bonds
FGN Saving Bonds are short-term bonds issued by the Federal Government every month through the Debt Management Office.
These bonds are backed by the full faith and credit of the Federal Government of Nigeria. Unlike T-bills and regular FGN bonds, FGN Saving Bonds are channelled towards smaller investors.
These bonds have a maturity period of 2 years and 3 years, and coupon payments are made quarterly (i.e. four times in a year).
FGN Saving Bonds typically receive less attention than FGN Bonds and NT-bills because they have relatively lower effective yields than other FGN-backed bonds.
For example, the 2-year FGN Savings Bonds issued in December 2023 had an effective yield of 12.464%. While the 364-day NT-bills issued on December 27 had an effective yield of 12.5%.
They are more open to smaller investors as subscriptions as the minimum subscription amount is N5000, while the maximum subscription amount is N50,000,000.
7. Money market Mutual Funds
Money Market Funds represent a low-risk short-term investment category, often managed by asset management firms under the regulatory oversight of the Securities & Exchange Commission (SEC).
These funds predominantly invest in low-risk money market instruments such as treasury bills, commercial papers, and bank deposits, ensuring a low-risk profile.
In adherence to prevailing regulations, no instrument within a money market fund is anticipated to have a maturity date exceeding 364 days, with the funds themselves typically maturing within 90 days.
6. Equities
Equities emerge as a major short-term investment option, presenting the potential for rapid gains. In a favourable market climate, stock prices exhibit dynamic fluctuations, offering short-term investors opportunities to capitalize on swift price movements and generate quick profits.
The high liquidity of stocks facilitates swift entry and exit for short-term investors, allowing them to leverage short-term market shifts.
Notably, on the NGX, stocks like Infinity Trust Mortgage Bank (INFINITY) have already recorded a 33% gain in 2024.
Transcorp Hotel shows a 20.9% gain, Sterling Bank boasts a 34.5% increase, and Transnational Corporation (TRANSCORP) has surged by 46.2% in the same period.
These impressive figures underscore the potential gains achievable. Within just a week in 2024 on the NGX, the market experienced a noteworthy appreciation of over 5%, highlighting its highly liquid nature.
5. Cryptocurrencies
Cryptocurrency, unlike some traditional short-term investment options, can be considered a short-term investment due to its potential for quick price movements. However, it comes with a significant caveat: it’s a notably risky choice.
The liquidity in the crypto market and its high volatility make it prone to rapid price swings, offering opportunities for short-term gains but also carrying substantial risks.
To provide context, on January 1, 2024, 1 Bitcoin (BTC) was trading at $42,700 as of 11.45 am, however, in less than 24 hours, it appreciated by 7% to hit $45,665. And 24 hours later, on January 3, it dropped to $42,300.
The volatility of cryptocurrencies makes them a highly risky but highly worthy short-term investment option. For example, in the last 365 days, bitcoin has appreciated by over 150% moving from about $17,000/BTC to $44,000/BTC within the period.
Investors must understand that while crypto can yield quick profits, it’s essential to be cautious due to the unpredictable nature of this market.
4. Currency Trading (Forex Trading)
Currency trading, also known as Forex trading, is another avenue for short-term investments, offering the potential for substantial gains within a relatively brief period. In Forex trading, investors speculate on the price movements of different currencies against each other. Traders aim to profit from fluctuations in exchange rates, taking advantage of short-term price movements.
The appeal of Forex trading lies in its potential for high returns due to leverage and the ability to trade around the clock. Short-term traders in the Forex market often capitalize on small price movements, leveraging their positions to amplify potential gains.
However, Forex trading comes with a significant caveat: it’s inherently risky. The high leverage available in Forex markets magnifies both profits and losses, making it possible to gain or lose a substantial amount of capital quickly.
3. P2P Lending
Peer-to-Peer (P2P) lending serves as an alternative short-term investment avenue where individuals lend money directly to borrowers through online platforms, bypassing traditional financial institutions.
Investors in P2P lending platforms earn returns through the interest charged on the loans they fund. The platforms assess borrowers’ creditworthiness and assign an interest rate based on risk, allowing investors to choose loans based on their risk tolerance and investment goals.
Some of the lending platforms that allow P2P lending in Nigeria include FINT, P2Vest, SukFin, and KiaKia, among others.
However, P2P lending carries certain risks. While platforms often perform credit checks, there’s a risk of borrowers defaulting on their loans, impacting investors’ returns. Furthermore, P2P lending might lack liquidity as withdrawing funds before the loan term ends can be challenging.
2. Fixed Deposit Accounts
Fixed Deposit Accounts (FDs) are a popular short-term investment option offered by banks where investors deposit a lump sum for a predetermined period, typically ranging from a few months to a few years, at a fixed interest rate.
As a short-term investment, FDs offer a secure and relatively low-risk way to earn interest on idle funds.
Fixed deposit accounts usually have a minimum and maximum tenure, for example, in UBA, the minimum and maximum tenure are 30 days and 180 days respectively.
FDs may have limitations such as penalties for early withdrawals and relatively lower returns compared to riskier investment options like stocks or mutual funds.
1. Exchange-Traded Funds (ETFs)
Exchange-Traded Funds (ETFs) are investment funds that trade on stock exchanges, similar to individual stocks. They are a collection of securities—such as stocks, bonds, commodities, or a mix of assets—designed to track the performance of a particular index, sector, or asset class.
Unlike Mutual Funds, ETFs are bought in shares, and their prices are generally more affordable, making them accessible to investors with smaller amounts to invest.
ETFs can serve as short-term investment options because they trade on stock exchanges, allowing investors to buy and sell them throughout the trading day at market prices. This liquidity provides flexibility for short-term investors who may need to access their funds quickly.
On the NGX, there are 12 ETFs currently trading, and the highest performer among them, the SIAML PENSION ETF 40 appreciated by about 616% in 2023 alone.
The STANBIC IBTC ETF 30 also appreciated by 192.65% in 2023 alone, reflective of the kind of gains that ETFs can produce within a year.