By Peter Egwuatu
The regulators and operators in the Nigerian capital market are gradually repositioning the mutual funds apparently to shield it from shocks that come with foreign investors’ dominance. A similar dominance has already caused havoc in the equity market.
But, how this is going to be achieved remains a challenging task as foreign investor form the bulk of investors in the market year-on-year, and the pension fund has not attained such muscle to absorb the shock when the foreign portfolio investors, FPIs, exit the market.
At the Nigerian Stock Exchange (NSE) mutual funds workshop it was disclosed that the mutual funds value is growing in geometrically, that it may soon surpass the Pension Commission, PENCOM, funds’ value and position as a hedge against sudden capital flight by foreign investors.
President, Fund Managers Association of Nigeria (FMAN), and also Managing Director, Greenwich Asset Management Limited, Dayo Obisan, said: “The growth recorded in mutual fund was a reflection of products creation and returns recorded in the sector.
Obisan, said the sustained increase in mutual funds investment in Nigeria, which could be seen through the 30 percent increase recorded between 2018 to 2019 so far was encouraging.
He said: “The fact that the Fund continues to grow in a depressed economy where the equities market is posting Year to Date (YtD) loss, indicated that the future prospect for the Funds is promising and profitable for investors. The fact that the Fund is growing in a depressed market, speaks for the efficacy of the vehicle.”
How mutual fund trading platform will boost market?
The mutual fund trading platform brings together market participants to facilitate electronic transactions with seamless interaction between NSE, CSCS Plc, Fund Managers and Brokers Dealers. Investors have the benefit of a single view of their mutual fund investment and ease a variety of transactions like subscription, redemption, cancellation etc.
Speaking on the development, Mr Olumide Bolumole, Head of Listing Business Division, NSE, said: “We are delighted to provide a solution that will enhance visibility for the listed mutual funds and promote financial inclusion while stimulating retail investor participation in our market. This reinforces our commitment to provide market professionals, issuers, fund managers and investors with a reliable, efficient and an adaptable exchange hub in Africa, to save and to access capital. Through this platform investors can pool funds into a chosen basket of securities which have proven to be a veritable means to optimise returns and reduce risks.”
According to the President of FMAN : “It is a great pleasure to see the platform launched and become operational. One of the initiatives in the FMAN 5-year road map was to develop and implement a nationwide distribution/trading platform for mutual funds. Over the past 18 months, The NSE, CSCS Plc, ASHON and the Securities and Exchange Commission (SEC) worked closely with FMAN to attain this great milestone.”
Also, the Chairman of the Association of Stockbroking Houses of Nigeria (ASHON), Chief Patrick Ezeagu, noted :“We in the ASHON are highly delighted to have been a part of the development and emergence of the Memorandum Trading Platform. The project was directed at reawakening the small savers in order to take advantage of investing via mutual fund to have the synergistic benefit of a better return in the market.”
“We cherish the relationship we have built in the course of this project with the FMAN and the NSE, we have the firm belief that this success story will transcend to other areas of the capital market. The Memorandum Trading Platform will facilitate the ease of doing business in trading and distribution of mutual funds, it will inspire small savers thereby promoting financial inclusion which is an important focus of our members. We congratulate everyone that contributed to the success of this initiative and encourage all operators to embrace this new aspect of deepening of our market which is a formidable incursion into an erstwhile grey sector.”
How secured is Mutual Fund?
The FMAN boss has assured that mutual fund investment is secured, as the Funds are directed towards a more secured investment window like the fixed income investments where there are less chances of default. “Out of the N860 million value of the Mutual Funds, 73 per cent of the funds are investments in money market instruments, or interest bearing instruments” he added.
He said that : “ The coast is very clear for the Funds to hit N1 trillion mark in soonest and possibly surpass the PENCOM funds which stood at about N8 trillion.”
According to him, if the value of equities capitalisation of the Nigerian Stock Exchange (NSE) currently stands at about N13 trillion, over fifty years after inception, and the mutual fund value is barely N1 trillion, even though below ten years of operation, the sky is the limit for the Fund.
Head, Market Surveillance of the NSE , Abimbola Babalola, said: “ The Exchange has sound interest in growing the fortune of investors in the Nigerian equities market and this informed the launch of the mutual fund portal where investors could take advantage of the growth potentials in the funds to grow their investment value in the secondary market.
How to drive investment in mutual fund?
He said that: “To drive the acceptance of investing in mutual funds, against the traditional retail investment which is mainly focused on equities, the Exchange leveraged on technology, to open the investment window to diversified investors across the globe, as through the portal, investors have the opportunity of having first class investor education on the funds, which drives informed investment decision.”
What FMAN stands for?
The Fund Managers Association of Nigeria, FMAN is an independent, self-regulatory and not for profit body established in August 2009 to promote the operations of Fund Managers registered with the Securities and Exchange Commission in Nigeria (SEC).The Association will address all issues affecting the industry’s development and represent its members at national and international levels in discussions about the future of the industry.
What are mutual funds?
Mutual fund is an open-ended mutual fund that invests in short-term debt securities characterized by short maturities and minimal risk. In Nigeria, average returns on Money Market Funds are very competitive in comparison to the average interest on savings account and inflation rate.
Who are the people that manage mutual funds?
The people that manage 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 is shared to investors in the funds annually or semi annually or as stipulated in the fund prospectus.
Mutual funds are operated by professional investment firms made up of people who are savvy with the money and capital market.
What are the categories of mutual fund in Nigeria?
There are mainly three categories of funds that a fund manager can invest in the country.
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 instance, treasury bills offered by the Government are issued at a coupon (rate) of say 10% per annum. This means that Government pays an interest of 10% on any amount invested in the treasury bill.
Mutual funds that are fixed income related look out for safe investments that can guarantee a good income stream. They are mostly suited for investors that have a long term investment horizon 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.
These are mutual funds that invest mostly in shares of companies quoted on the stock exchange. Some funds can invest in private placements. Equity Funds offer high returns but are associated with high risk.
Mixed income funds
Mixed income funds are a combination of equity funds and fixed income funds. The Fund often offers low risk for investors due to the mixture of securities involved. Being a low risk investment, its returns are usually low.