It’s good to be back and I want to believe most of us are gaining from and seriously considering the investment options we’ve discussed. We have so much to explore together, so let’s get into what we have for today.
Someone pulled a call through to me last week and after a lot of discussion about fun, career and life, she asked:
“What really is the key to success and wealth creation?”
I simply said that the secret to success is to follow what wealthy people are doing. Wealthy people make their money work for them through investments or business opportunities. I understand some of us are not self employed and do not have as much money, time and resources as these people but the good news here is that we can build a portfolio of investments with what we have and create wealth for ourselves. We can do this by engaging in Mutual Funds.
What is a Mutual fund?
A Mutual fund is the pool of cash from a variety of investors (you and I, for instance) for the sole purpose of investing the cash in shares, bonds, treasury bills etc. We refer to it as a portfolio of investments.
Why should you consider investing in Mutual funds?
Why should you pick this investment over other options? Easy. I want you to answer the questions below and if your answer is ”No”, then investing in mutual funds is an option you should definitely consider.
- Do you have the time to invest in the money and capital market yourself?
- Do you know enough about the business of buying and selling securities?
Mutual funds like other investment options, gives you an opportunity to save for the future. By investing in this option, you have an opportunity to invest in a portfolio of various investment options rather than having your money in just one basket.
Who operates a Mutual Fund?
Mutual Funds in Nigeria can be operated by the Investment arm of Commercial banks, stock brokerage firms, investment banks etc. Below is the list of Top Nigerian mutual funds operators.
How much can you invest?
Mutual Funds have different investment plans under them. Some can have a minimum of #5,000, whilst some can be #10,000, #50,000 and others #1,000,000.
How long can you invest for?
Mutual Fund is both a short term and long term investment. You can invest for 30 days, 90 days, 1 year, 6 years or even 10 years depending on your choice.
What is the Interest Rate?
Mutual funds have various plans under them and the interest on these plans vary. Presently the interest rate on Mutual fund for Stanbic IBTC Asset Management Ltd and ARM Investment is around 18% per annum.
How is the Interest Rate calculated?
The interest (profit) derived from the diversified pool of investments are shared to investors in the funds annually or semi annually or as stipulated in the fund brochure. But with mutual funds, you can monitor your daily interest by calculating it.
Let’s assume Bobby invested #100,000 in Mutual funds for a year in an Investment Bank that offers for 18% interest per annum ( as stipulated in the fund brochure).
Interest = 100,000 x 364days x 18%
If he investments for 30 days,
Interest = #1,500
You can calculate your daily interest by dividing this interest by the number of days the investment is for.
Note: This daily interest might vary if the interest rate changes and so at the end of the year when your interest is been paid you can get exactly 18,000, below or above it.
Are Mutual Funds Safe?
Every investment has a downside. We have to understand that just like other investments, mutual funds also are exposed to the risk and rewards system. I would advise you to invest in mutual fund operators with solid experience and good interest rates.
Where do they Invest?
I know how much everyone wants to know this. Mutual Funds Operators mainly invest in broad and diversified pool of investments.
- Money Market – Mutual Funds Operators under the Money Market invest in instruments (investment options) like Certificate of Deposits, Commercial Paper, Treasury Bills etc. By investing, they are paid an agreed interest rate and the principal at a fixed date.
A Commercial Paper is a money-market security issued (sold) by large corporations to obtain funds to meet short-term debt obligations.
- Capital Markets – Mutual Funds Operators under the Capital Markets invests in markets where Bonds, Stocks (Shares) are traded on a daily basis. So, a Mutual Fund can also use your money to invest in stocks and bonds.
Are my returns (interest) tax free?
No. The interest you get from investing in Mutual Funds are not tax free. Therefore, you will be taxed on the interest obtained by the relevant tax authority.
Do the Fund Operators charge fees?
Yes they do. They charge you for helping you invest your money. The fund operators may charge between 2% – 5% of the value of the Portfolio. The fees can either be charged upfront or when you make your profit.
If you would like more details about the Stanbic IBTC Asset Management Ltd and ARM Investment, one of the largest mutual fund operators in Nigeria, send me an email.
I hope you find this informative; and if you have questions or contributions, you can always leave it in the comment section below.
Remember: This gives us an opportunity to invest in a lot of options at a time. It is definitely worth a try.
Have a great week, and until next time,