By PETER EGWUATU
Regulators and investment experts in the Nigerian capital market have been advising investors especially the retail ones to have their investment diversified.
That was the most reasons why retail investors got their fingers burnt when the Nigerian stock market crashed in 2009.
Investment diversification protects investors’ money from adverse stock market conditions.
When it comes to investing, investment experts advised that investors should spread their money around, that is, diversifying their investment portfolios. Diversification protects you from losing all your assets in a market collapse. The sharp decline in stock prices in the Nigerian stock market of 2008 and 2009 are proof enough that putting all your eggs in one basket is a risky strategy.
But in order to diversify correctly, an investor for example, need to know what kinds of investments to buy, how much money to put into each one, and how to diversify within a particular investment category. It is good for investors to go for variety, and not quantity of shares.
Also, having a lot of investments does not make you diversified. To be diversified, you need to have lots of different kinds of investments. That means you should have some of all of the following: stocks, bonds, real estate funds, international securities, and cash.
For the retail investors in the Nigerian capital market, who do not have much funds to diversify their investment, such category of people can diversify by embracing mutual funds.
Mutual funds are for everyone. No matter much money an investor have to invest; the investor can start investing in mutual funds.
Mutual funds provide you with access to the various investment markets by pooling your money with the money of several other individuals with similar investment goals.
Mutual Funds are also a great way to diversify your investments and help you minimise risk. Each of our mutual funds has a specific investment objective and strategy to suit the investment needs of a broad range of clients.
Although a mutual fund is not traded on the stock exchange, like stocks, investors are able to buy and sell through a Fund Manager at any time. Units are created and sold to new investors on a continuous basis, so you can either invest a lump sum or save on a regular basis. Mutual funds are regulated by the Securities and Exchange Commission (SEC) in Nigeria.
We have Money market fund, Fixed income fund and Heritage fund existing in the country. The money market fund is regarded as the short-to-medium term investment solution with low risk. The fixed income fund is the regular income with exposure to the bond market, while Heritage fund is characterized with superior capital growth with diversification across equities, bonds and treasury bills.
Money market Fund: It is a short-to-medium term investment giving unit holders stability, liquidity and some income. It typically offers higher interest rates when compared to rates on bank savings accounts. This fund invests in treasury bills, bank tenured deposits and commercial papers. There is low risk in this kind of fund. Investors with as little as N5, 000 can invest in this kind of fund. In this kind of investment, investors do not need to pay any withholding tax on capital gains. The minimum holding period for such kind of fund is 30 days and income could be distributed quarterly depending on the fund manager.
Fixed Income Fund: It is a regular income with exposure to the bond market. Fixed income is higly recommended for aged people. It is amedium-to-long term investment giving unit holders a consistent regular income.