Mutual Fund is a US$19.2 trillion industry in the United States of America (USA) with over 96 million Americans, representing 44% of the household having an investment in Mutual Funds. For most people in developed climes, investment in mutual funds forms a critical element of their financial planning processes.

In Nigeria, the sector is not as developed and only a few people invest in mutual funds or even understand its nature and how it works. However, in the past couple of years, there is a growing awareness of the benefits of mutuals and how it can be used to build an enduring wealth. That is the reason there has been an increase in the number of funds available from less than 50 in 2012 to about 63 in 2017. The combined Net Asset Value of available funds in the market have also grown in these period by about 294%. Some of the best funds are said to be consistent in giving returns above the broad market index.

Mutual funds provide a good opportunity to the average guy to invest in the financial markets with small money and limited knowledge, leaving the technical or intellectual side of investment selection to a professional fund manager. Unfortunately, it appears that this average guy does not understand these investment concept and has failed to take advantage of the benefits provided to build an enduring wealth.

This post aims to provide you with that knowledge to help you understand why you should start investing in mutual funds by highlighting:

What Mutual Funds Are
Major types and classes of mutual funds
Benefits of mutual funds investment
How you can invest and make money
The best mutual funds in the Nigerian market
What to consider before you decide on a fund to invest in

How You Can Make Money by Investing In Mutual Funds

You make money through distribution of income and growth in the Net Asset Value of the funds. Depending on the type of fund, income are distributed periodically say half-yearly or annually. When you wish to exit, the net asset value shall be calculated based on current performance to determine the price.

But first, What Mutual Funds Are!

Mutual fund is a type of collective investment scheme under which a professional funds manager pools money from different people and institutions in exchange for units in the funds for the purposes of investing in a specified asset or classes of assets. The funds manager is usually an investment management company licensed by the Securities and Exchange Commission to provide fund management services and having the right compliment of skills and experience in managing funds.

Mutual funds typically invest in financial assets such as stocks, bonds, money market instruments like treasury bills, certificates of deposits, or a combination of these and other cash alternatives. Every mutual fund has an investment strategy which is communicated in the prospectus. The investment strategy often outlines what the objectives of the fund are and what kind of instrument or asset class it will invest in.

Returns on these investments are distributed amongst the unit holders in proportion to units held after taken out cost of administering the fund or the fund managers’ fees.

Mutual Funds Types

There are two broad categories of mutual funds; these are the Open-ended funds and the closed funds. An open-ended mutual fund is one in which there is no limit to the number of units to be issued. Shares or units are created and redeemed as necessary as the fund manager will usually issue new shares to a new investor based on the Net Asset Value and redeem it when the investor wants to sell. Most mutual funds in the market are open-ended.

In contrast, a closed mutual fund is one in which there is a limit to the number of shares or units issued. The set number of shares is usually offered in an IPO and thereafter listed to be traded in the open market like regular shares. A typical closed ended fund being so traded is the Skye Shelter Fund.

Mutual funds further exist in different varieties depending on the investment objectives and strategies of each fund. Thus, we can easily identify:

Equity Funds: These funds invest primarily in the stocks of quoted and unquoted companies. Equity fund managers adopt different strategies based on the objectives of the fund. Some may focus on growth while others may focus on dividend. Investing in equity funds afford you the opportunity of owning part of the shares of top companies that you ordinarily would not have been able to buy were you to invest directly. As is usual with investing in stocks, price fluctuations may affect the NAV of an equity funds.

Money Market Funds: Money market funds invest in short dated money market instruments such as treasury bills, certificate of deposits, banker’s acceptances and commercial papers. The underlying assets of money market funds are safer investment with lower returns than what could be obtained from equity market. As a result, the NAV of these funds are also lower but offer more security of investment.

Fixed Income Funds: These funds invest in debt securities such as FGN Bonds and investment grade corporate bonds. Like money market funds, fixed income funds may offer lower returns on investment but are very safe because FGN bonds are backed by the full faith of the federal government, so you can be certain that your capital invested is preserved in addition to a regular income on your investment at fixed intervals.

Ethical Funds: These funds are structured to appeal to investors who are concerned about where their monies are invested due to their personal and particularly, religious beliefs. Ethical funds may not, for example, invest in the shares of companies involved in the production of tobacco, alcohol, and weapons or involved in gambling as these could be repugnant to some religious beliefs.

Real Estates Funds: These funds invests in real estates and properties

Exchange Traded Funds: These funds are structured to track the performance of major indexes such as the NSE All Share Index and other sectoral indexes in the market.

Benefits of Investing in Mutual Funds

Some of the benefits you derive from investing in mutual funds are that you have access to the services of professional management firm, a service you may not have been able to afford if you were to invest directly. Another advantage is that you share the risk of investment with thousands of other people, hence the magnitude of loss could be minimal should the market adversely affect the fund. Again, you derive the benefit of investing and benefiting from a widely diversified portfolio that ordinarily would have been very difficult for you if you were to invest directly. To invest in mutual fund is easy and requires no complicated processes. Mutual funds also provide liquidity to the investor. Liquidity refers to the ease with each you can convert your investment to cash by selling it.

Get more knowledge and begin to embrace this investment window to create wealth for yourself and family this 2018

https://kobotalk.com/how-you-can-make-money-by-investing-in-mutual-funds/#more-243

Best Performing Mutual Funds To Invest In Nigeria (2019)

Mutual funds are pretty sophisticated investment products. Before you choose a mutual fund to invest in, it is important to spend a little time learning about the major mutual funds available in the market and how those funds have performed over time.

https://nairabarter.com/blog/best-mutual-funds-in-nigeria/