BY MICHAEL EBOH

The Net asset value of the 45 open-ended funds, closed ended funds and Real Estate Investment Schemes, REITS listed in the secondary segment of the Nigerian capital market as been put as N77.676 billion, according to a document released by the Securities and Exchange Commission, SEC.

In addition, the document titled: ‘Weekly Net Asset and Number of Units, as at August 2011,’ made available to Vanguard, put the combined unit price of all the funds, commonly called collective investment schemes or mutual funds on the Nigerian Stock Exchange, NSE as at August 19, at N13.005.2.

The Net asset value of the 45 mutual funds appreciated by 3.42 per cent from N75.104 billion recorded on August 12, 2011, while the combined unit price of all the funds appreciated by 8.45 per cent from N14,206.01 recorded August 12.

The NAV of the funds represents a decline of 17.7 per cent from a NAV of N94.373 billion recorded in January 2011.

The Securities and Exchange Commission and the Nigerian Stock Exchange have been at the forefront of promoting and encouraging the floating of mutual funds and investors’ patronage of the funds.

The Chief Executive office of the NSE, Mr. Oscar Onyema had, during the recent listing of a closed-end fund, assured the investing public that promoting closed-end funds is a major area of its focus.

He disclosed of its plans to introduce five other products within the next five years, adding that in addition to equities, it aims to promote active trading in bonds, exchange traded funds, options and financial futures.

He said that these initiatives are a vital part of its strategies to increase the vibrancy, depth and competitiveness of the market, making it the undisputed gateway to African frontier markets.

Mutual Funds

Mutual fund is a professionally managed type of collective investment scheme that pools money from large number of investors and invests such funds in stocks, bonds, short-term money market instruments and precious metals in a few cases.

Mutual fund has a fund manager that trades the fund’s investments in accordance with its investment objective. It is highly recommended for retail investors, because it provides small investors with the opportunity to invest in a number of stocks through a pool of funds.

Mutual fund also provides investors with the opportunity to diversify their risk portfolio and maximise returns.

Net Asset Value

It is important to note that the Net asset value (NAV) is a term used to describe the value of an entity’s assets less the value of its liabilities.

If a fund has a Net Asset Value of N200 million and one million units in issue on a certain day, the NAV per share, being the price at which the units will be issued, is N200. To this end, a person investing N40 million on that day will therefore be given 200,000 units.

Immediately following the individual’s investment the total NAV of the fund will be N240 million, as the new investor’s cash becomes part of the fund and is available for investment by the fund.

The investor will then be entitled to one-sixth of the fund’s value when he withdraws his investment, proportionately adjusted for any subsequent profits or losses.

In the same vein, the valuation of the assets and liabilities of an open-ended fund is therefore very important to investors. If the NAV in the above example had, with the same assets, been calculated as N160 million (and the NAV per share as N160), the investor would have been given 250,000 shares and would become entitled to one-fifth of the fund’s value.

In contrast, closed-end funds are traded in the open market between investors and so the price of shares or interests in a closed-end fund will be whatever the parties agree it to be, which may not correspond to the fund’s NAV. Publicly traded shares in such funds generally trade at a price below NAV.