I made my first investment at age eleven. I was wasting my life up until then.
– Warren Buffet
Have you been hearing the phrase “Mutual Funds” or “Mutual Funding” lately, but don’t know what it is? Have you been thinking of investing but don’t know how to go about it? Or maybe you really would love to start investing, but feel you don’t have enough money to do so? Are you just a curious person like me? Whatever category you belong to, I am of the opinion that this article is beneficial to you or someone you know.
Before you dive in, I want you to keep these two rules for investing in mind:
Rule No. 1: Never lose money.
Rule No. 2: Never forget rule No.1
– Warren Buffett (American Business Magnate and Investor)
Now, what are mutual funds?
Imagine you’re a fresh graduate living in Ibadan with your family. You receive your NYSC call-up letter and discover you’ve just been posted to serve the fatherland in Lagos State.
You’re immediately excited because, come on, it’s Lagos! I mean, Lagos is the dream state of so many prospective corps member. Talk about the job opportunities, the nightlife, the chill spots, and on and on like that. Your parents are excited, too, because of its proximity to Ibadan … and, let’s face it, that it’s not the north.
So, time to start packing for Lagos. Your parents give you ₦150,000 for your post-NYSC camp accommodation. You are to rent a decent self-contain for a duration of one year. After orientation in camp, you are assigned a place of primary assignment (PPA) in Lekki, and because you are a JJC in Lagos, you attempt to rent on the Island with your ₦150k. You get the shock of your life when the real estate agent says, “You’ll need about ₦700,000 for a good self-contain in Lekki.”
You speak to your parents about it and find out they are broke. In fact, it wasn’t easy for them to raise the ₦150,000 they gave to you. You then speak to a couple of friends you made in NYSC camp who tell you Lekki is super expensive and you should consider Surulere instead for its proximity to the Island.
So, you reach out to a real estate agent who has a deep knowledge of the ins and outs of Surulere. You tell him your needs: a secure estate, no area boys or issues of fighting/robbery, ample parking space (for friends and family when they visit), etc., etc. The agent smiles and says okay, you can get a good place that fits your specifications around Bode Thomas, Adelabu, Masha and Eric Moore. However, you get another shocker when he tells you the minimum amount for the kind of accommodation you’re looking for is ₦400,000 per annum. You plead with him that you’re a corps member who is new in Lagos and all you have is ₦150,000. He says there’s nothing he can do about it. So you leave his office sad.
Not long after, you get a call from him that someone just informed him of a vacant self-contain in an estate around Adelabu. The owner is putting it up for ₦300,000 per annum (a rare opportunity to come by). He tells you it’s a great place, that you will enjoy your stay there. The problem, however, is you only have ₦150k.
You immediately start wondering what to do, who to call. You remember a corps member you made friends with in camp who told you he’s also new to Lagos and is looking for accommodation. You call to ask if he’s gotten a place and he says, no, he’s still searching. In your mind, you go, “Thank God,” and you tell him about the awesome ₦300,000 self-contain you found. He buys the idea (as he also desired a place close to Island).
He meets up with you and the agent, and immediately you both make a payment of ₦150,000 each and are able to secure your desired accommodation in your preferred location.
This is sort of how mutual funds work. Different people come together to fund a common project with no one bearing all the risks alone. Basically, you and other investors (could be some friends of yours) pool money together and invest in a particular asset. Mutual Funds gives you the advantage of being able to purchase securities that typically, you might not be able to do on your own.