Mutual Funds are growing rapidly and are quickly becoming the default destination for Nigerians’ savings. Just as the Pension Funds began to take off a decade ago, now Mutual Funds are growing fast.
The total value of Money Market funds rose 11% and Fixed Income funds rose by 59 per cent in the first half of this year. Mutual Funds are set to become a large part of the savings industry. In a few years they may rival Nigeria’s Pension Funds in size.
In its new report ‘The Shifting Appetite of the Nigerian Investor: From Savings to Mutual Funds’ the renowned Coronation Research explains the conditions behind this growth. The total Assets Under Management (AUM) of Nigeria’s Mutual Funds (also known as Collective Investments Schemes) rose by 305% in the period between 2015 and 2019, more than doubling in inflation-adjusted terms.
As commercial banks progressively offered lower rates on Savings Accounts, more money switches to Mutual Funds. And the introduction of tech-based savings platforms introduces a new generation of young savers to Mutual Funds.
“The Mutual Fund industry in Nigeria faces two challenges,” says Guy Czartoryski, Head of Research at Coronation Asset Management, “the first is risk management. The era of high returns from Nigerian Treasury Bills ended in 2019. Today, investors need to invest in a variety of other asset classes in order to obtain a reasonable return, without becoming totally exposed to any one asset class.”
“That means that investment management is more complex and more necessary than before. Second, there needs to be more information on fund performance in order to facilitate fund selection by investors and professional advisers. Fortunately, the industry and its regulator are moving in this direction, preparing the ground for a hugely expanded Mutual Fund industry in future, and creating the conditions for a significant capital base for the nation.”
