PERSPECTIVES ON INVESTMENT OPTIONS

Two fund managers share perspectives on investment options.

MICHAEL OYEBOLA-TEN REASONS IN FAVOUR OF INVESTING IN MUTUAL FUNDS

Investing in Nigeria’s dynamic and evolving financial landscape can be rewarding, but it also comes with its fair share of challenges and risks. For investors seeking a balanced, diversified, and professionally managed approach to wealth accumulation, mutual funds present an attractive opportunity.

And here are several reasons why you should consider mutual funds as a preferred investment vehicle.

Diversification and Risk Mitigation

One of the primary reasons to invest in mutual funds is the opportunity for diversification. Mutual funds pool money from multiple investors and invest in a diversified portfolio of assets, which include stocks, bonds, real estate, and more.

Diversification spreads risk across different asset classes, reducing the impact of poor performance in any single investment. For an individual investor, creating such a diverse portfolio can be challenging and costly. Mutual funds provide an efficient solution.

Professional Management

Mutual funds are managed by experienced and skilled fund managers who make investment decisions on behalf of investors. These professionals have access to extensive research, data, and market insights, enabling them to make informed investment choices. This level of expertise can be invaluable, especially for investors who lack the time, knowledge, or inclination to manage their investments actively.

Affordability and Accessibility

Mutual funds are accessible to a wide range of investors, making them an inclusive investment option. Investors can start with relatively small amounts of money, sometimes as low as ₦500, allowing them to participate in the financial markets even with limited capital. This accessibility democratises investment opportunities, ensuring that more Nigerians can benefit from the potential returns offered by various asset classes.

Liquidity

Investors in mutual funds enjoy high liquidity. Unlike some other investment options, mutual funds allow investors to buy or sell their units on any business day at the fund’s prevailing Net Asset Value (NAV). This flexibility means that investors can access their funds quickly in times of need or when they spot new investment opportunities.

Regulation and Investor Protection

The Nigerian Securities and Exchange Commission (SEC) regulates mutual funds, ensuring a level of transparency and investor protection. Fund managers must adhere to strict regulatory guidelines, provide regular reports to investors, and act in their best interests. This regulatory oversight helps to build trust and confidence among investors.

Compounding Returns

Mutual funds allow investors to benefit from the power of compounding returns. As the fund’s investments generate income and capital gains, these earnings are reinvested into the fund, potentially leading to exponential growth over time. The longer an investor stays invested, the more pronounced the compounding effect becomes, helping you build wealth steadily.

Professional Asset Allocation

One of the key benefits of mutual funds is professional asset allocation. Fund managers constantly assess market conditions, economic trends, and asset class performance to adjust the fund’s holdings accordingly. This active management can help optimise returns and manage risk over time.

Variety of Fund Options

The Nigerian mutual fund industry offers fund options to suit different investor preferences and risk tolerances. Whether you are looking for equity funds, fixed-income funds, money market funds, Shari’ah-compliant funds, infrastructure funds, UDS funds, etc., there is likely a mutual fund that aligns with your investment objectives.

Investing in the Nigerian Economy

Investing in mutual funds in Nigeria is not just about financial gain; it also supports the growth and development of the Nigerian economy. By investing in local businesses and government securities, mutual funds contribute to job creation, infrastructure development, and overall economic stability.

Convenience and Ease of Management

Investing in mutual funds is hassle-free compared to managing a portfolio of individual stocks and bonds. Investors do not need to worry about tracking individual investments, monitoring the market daily, or making tactical decisions. Instead, they can focus on their broader financial goals while the fund manager takes care of the day-to-day investment activities.

Steady Income Stream

For income-oriented investors, mutual funds can provide a steady stream of income through dividend distributions and interest payments. This can be particularly attractive for retirees or those seeking to supplement their regular income.

In conclusion

Investing in mutual funds in Nigeria offers a myriad of advantages for both novice and experienced investors. From diversification and professional management to liquidity and tax efficiency, mutual funds provide a comprehensive solution for building wealth over time. Additionally, they contribute to the growth of the Nigerian economy by channelling investments into various sectors.

It is however crucial for investors to conduct thorough research and select mutual funds that align with their financial goals and risk tolerance. While mutual funds offer numerous benefits, they are not entirely risk-free. It is essential to understand the specific characteristics and historical performance of each fund.

In summary, mutual funds represent a compelling opportunity for investors looking to grow their wealth while benefiting from professional management and a diversified portfolio. As Nigeria’s financial markets continue to evolve, mutual funds are poised to play an increasingly significant role in helping investors achieve their financial aspirations.

Michael is the founder of moneycounsellors. com, a research, data and information platform where investors can find data, information and analysis on mutual funds, pension funds and annuity products in Nigeria.

ODIRI OGINNI: INVESTING TRENDS AMONGST HIGH NET-WORTH INDIVIDUALS

Investing trends are constantly evolving and reshaping the investment landscape as investors seek to capitalise on new opportunities and mitigate risks. Understanding these trends and incorporating them into investment strategies can lead to better performance and higher returns. However, investors should always be aware of the risks involved and should seek professional advice before making investment decisions.

High Net-worth Individuals (HNWIs) are individuals with unique investment needs and objectives, and their investment trends are crucial indicators of the overall economy’s health as they are often at the forefront of investing trends.

Their investment strategies are evolving in response to changes in the economy and society. It is essential to understand these trends and to develop investment strategies that meet the unique needs of HNWIs. By staying abreast of these trends, these categories of investors can achieve their long-term investment objectives and protect their wealth over the long term.

Having had the privilege of working with several HNWIs, I have observed some interesting trends in their investment strategies.

Environmental, Social, and Governance (ESG) Investing

In recent years, there have been some noticeable trends in investing, one of them being the rise of Environmental, Social, and Governance (ESG) investing. This type of investing involves selecting companies that meet certain ESG criteria, such as sustainability, social responsibility, good corporate governance, and labour practices. HNWIs are increasingly becoming aware of the impact their investments have on the environment and society and are seeking investments that align with their values as they seek to address social and environmental issues through their investments.

Exchange-Traded Funds (ETFs).

Another trend is the growth of passive investing through exchange-traded funds (ETFs). ETFs are investment funds that track a particular index or sector and are traded like stocks. Passive investing has grown rapidly in recent years as investors seek to lower fees and diversify their portfolios. This trend has disrupted the traditional active management industry and has forced fund managers to compete on price and performance.

Alternative Investments

Alternative investments are gaining popularity as HNWIs are increasingly turning to alternative investments such as private equity, private debt, hedge funds, and real estate. These alternative assets provide HNWIs with greater diversification, higher returns, and access to unique investment opportunities that are not available in traditional asset classes. These investments offer the potential for higher returns but also come with higher risks. HNWIs are attracted to these investments because they provide diversification, which helps to mitigate the risk of market fluctuations. Private equity, for example, has been an attractive investment option for HNWIs, with returns outpacing those of the stock market. Real estate, on the other hand, provides HNWIs with an inflation hedge and a tangible asset that can be appreciated over time.

Artificial intelligence (AI)

This is another trend that is transforming the investment industry. AI-powered algorithms analyse large sets of data and identify patterns that can be used to make investment decisions. This technology has the potential to revolutionise investing, to improve the accuracy of predictions, and to minimise risk. With the advent of robo-advisors, which are AI-powered investment platforms, it has become easier for investors to access sophisticated investment strategies.

Multi-generational wealth planning

This is becoming more important as HNWIs are increasingly focused on multi-generational wealth planning. They want to ensure that their wealth is protected and passed down to future generations. As such, HNWIs are investing in trusts, family offices, and other structures that can help to preserve and manage their wealth over the long term.

International Investing

International investing is another major trend among HNWIs. HNWIs are increasingly investing in companies and assets outside their home country to diversify their portfolio and mitigate geopolitical risks. International investing provides HNWIs with exposure to new markets, currencies, and assets that are not available in their home country. In the same vein, investment in dollar-denominated assets is increasing as HNWIs are looking for opportunities to invest in multi-currency assets. These foreign markets offer the potential for high returns but they also come with higher risks. HNWIs are attracted to these markets because they provide diversification and exposure to economies that are expected to grow faster than developed economies.

MRS ODIRI OGINNI IS THE Managing Director of United Capital Assets Management