Mutual Funds are gaining wide acceptance in Nigeria’s investment climate, with savvy investors choosing the investment plan over savings, Head of Research at Coronation Asset Management, Guy Czartoryski, has said.
Speaking during the launch of Coronation Research: ‘The Shifting Appetite of the Nigerian Investor: From Savings to Mutual Funds’ he said that mutual funds are the next big thing in Nigerian finance and our aim is to explain why.
For instance, the total assets under management of Nigeria’s Mutual Funds over the years 2015 to 2019 rose by 305 per cent and more than doubled in inflation-adjusted terms.
“Even in this recession-hit year the value of Money Market Funds rose by 11 per cent and the value of fixed income funds rose by 60 per cent during the first six months. Whereas banks used to be the default destination for savings, savers are increasingly turning to mutual funds,” he said.
Czartoryski said that if one had asked, 10 years ago, what was the next big thing in Nigerian finance, the correct answer would have been pension funds, because these have grown to manage in the region of Naira 10 trillion of assets. “We believe that the correct answer to the same question today is Mutual Funds. These are set to grow to rival the Pension Funds in size in the years to come. And Mutual Funds will provide Nigeria with a pool of much-needed capital,” he said.
He said the outlook for Nigerian savers and investors is undergoing a complete transformation.
“During the period between 2010 and 2019, the average Nigerian Treasury Bill yield was 14.7 per cent and this was, on average, 2.6 percentage points above the rate of inflation. Savers and investors had it easy during this period; essentially all they had to do was to invest in Treasury Bills in order to beat inflation. From the end of 2019 onwards this has no longer been the case. Savers and investors have to be a lot more subtle about what they invest in than they were before. And they have to take on a degree of risk, whether that means investing in Fixed Income Funds, Credit Solutions, Balanced Funds or Equity Funds,” he said.
He said that part of the transformation that investors are experiencing has to do with risk. When investors bought Nigerian Treasury Bills they were buying essentially risk-free investments.
“The point about Mutual Funds is that they are open to all-comers, and indeed several tech companies have created platforms that afford easy access. Of course, when the yield on a Nigerian Treasury Bill is close to 2.7 per cent and inflation is at 13.2 per cent, then it is not easy to close the gap between what is available in the market and what people would like to earn in the short term. However, there are a number of Mutual Funds available, with different product offerings and different levels of risk. It is important for people to familiarise themselves with the returns on offer and the level of risk that they are taking,” he said.
Continuing, Czartoryski said that as Mutual Funds grow they will create a growing portion of the nation’s overall savings. However, we not expect Mutual Funds to be passive investors. As we have seen, they stand in the middle between Treasury Bill returns which are low and savers’ desires for investment returns that beat inflation.